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[mercutio_bgq]

Any chance we're experiencing an "oil" bubble?  That one day soon, the inflated price will be realized by all, and the bottom will fall out of the market overnight?

Can't a collapsing price work FOR us at some point?

Comments

[alteredhistory]

If the price really is over inflated by speculators then, yes, it would eventually collapse. But that requires that the speculators get cold feet at some point and bail out. But the whole point of speculation is that you expect the price to rise. If they expect it to rise and the "real" price (what it would be in the absence of speculators) rises faster than their expectations, then all you end up with is really expensive gas (and rich speculators).

At this point, even if it does collapse, I would be *extremely* surprised if it would get anywhere close to the "normal" price of a few years ago. In other words, in Texas, I don't expect to ever buy gas for less than $2.50/gallon ever again. To put that in perspective for everyone else, this week, for the very first time ever, I bought gas at over $3/gallon.

[alteredhistory]

> Can't a collapsing price work FOR us at some point?

Not in Texas. That's the other side of the coin: the consumer side of the economy may be suffering under high gas prices, but Texas has a whole lot of oil industry interests. Over the last couple years and into the near future, you should be seeing lots of bridges and roads getting much needed repairs, schools getting textbooks and health care getting paid for. If the oil price collapses again (see 1980s) all that will stop again.

[mercutio_bgq]

Except that the high oil prices are not translating to higher public money. The government taxes are flat rates per gallon/barrel, not a percentage of the overall price. If demand stays roughly constant, then the only swelling is profit for the private companies (which in Texas does not translate into any more public money).

[alteredhistory]

Um. Those pesky at-the-pump taxes aren't the interesting taxes. The interesting ones are the business income taxes that Exxon/Mobil and the others pay. And it has translated into huge income streams for Texas.

[raayat]

It's extremely difficult, for a number of reasons, to determine if the price is a bubble or not, but one very crude way to tell is to look at the futures chain for crude oil. Under "normal" conditions, the price of oil in the future rises slightly more steeply than the interest rate to that point in time. When the futures chain slopes downward, as it is doing now, it means that the market is expecting the price to come back down in the future. On the downside, it doesn't look like anyone's expecting oil to go below $96/bbl. in the next eight years.