Slicing Through a Bubble

We’ve popped the internet and the housing bubbles. So what comes next? Many people think that the next bubble to burst will be oil. But are we really in a bubble?

Oil prices have gone up in recent years even as production has risen. That means that the price is going up because demand is increasing.. That marginal demand is mainly coming from China, India, and the rest of the developing world.

If we were in a bubble, there would be extra production and lower demand. Inventories would be rising. We saw that with the internet (remember Cisco’s inventory problem) and housing. But oil inventories have been pretty stable.

So what is the likely future oil price? That depends on many political things we can’t predict: energy policy, tax incentives, environmental regulation, and others But one thing is clear. At these prices, consumers will slow their consumption. It just takes some time for them to ease up on the throttle.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-03T18:54:38+00:00 May 21st, 2008|Global Market Update|0 Comments

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