Oil Price Bubble?

Some very interesting facts from the article:
- Although U.S. crude oil inventories have fallen, gasoline inventories are at their highest since March 1993
- World oil production was up 2.5% in the first quarter of 2008 over the same period in 2007 while world oil consumption rose by just 2%
- World production is projected to be 3.3% higher in the second quarter and 4.1% higher in the third quarter than the same periods a year ago. On the other hand, world demand is projected to rise by just 1.6% over the next six months
- The U.S. consumed 4 percent less petroleum in January 2008 than it did the year before
- Even China’s thirst for oil is abating somewhat. Its demand for oil, which once rose at 10 percent per year, has now dropped to 6 percent per year
- World surplus oil production capacity has gone from a very tight 1.5 million barrels per day a couple of years ago to more than 3 million barrels today

Most interesting of all:
“Economist Richard Rahn from the Institute for Global Economic Growth believes battery technologies are improving so rapidly that the majority of cars sold in 10 years will be all-electric. This would certainly help drive down the price of oil. Supply is also inelastic—it takes a long time to do the exploration, drilling, and refining necessary to boost production in response to higher prices. This inelasticity of demand and supply means that petroleum prices are very sensitive to relatively small changes in either. This means that prices can fall as steeply has they rose.

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So what will happen to oil prices over the next few years? No one is predicting $10 per barrel oil. However, once the current bubble bursts, both Evans and Lynch believe that the price of crude will settle at around $60 to $70 per barrel in the next couple of years. “It’s very hard to pinpoint just how long a bubble can expand before it breaks. Getting the timing right is not an easy matter,” says Evans. But he adds, “I think that this is the riskiest time to be long in crude oil since 1980.”