I have three questions for our forum crowd:
1. Are we fools? In other words, was all of that Peak Oil talk just a lot of blather, similar to the old Dot Com "New Economy" nonsense?
2. Did people like us contribute to the Oil Bubble?
3. Is it time for us to be honest and admit we were wrong?
Here's the full text of the WSJ article:
The Official Demise of the Oil Bubble by David Gaffen:
On Sept. 11, 2007, the price of crude oil closed at $78.23 a barrel — the last time oil closed below $79 a barrel, until Friday. What seemed like a bewildering ascent in the price of crude at the time is now a relief to traders, who watched oil fall $8.98 a barrel to close at $77.61 on the New York Mercantile Exchange, the lowest closing price in more than a year.
Like a number of other commodities, oil’s move went from a steady ascent to a vertical bounce in the spring of 2008, topping out near $150 a barrel before speculative excess started to drain from the market. And those who believed that the oil price was justified by fundamentals — being, as it is, an actual product, rather than an Internet company’s vague promise of revenue — are smarting.
“This is a market that is basically returning to the price level of a year ago which it arguably should never have left,” says Tim Evans, energy analyst at Citigroup. “We pumped up a big bubble, expanded it to an impressive dimension, and now it is popped and we have bubble gum in our hair.”
Black, stinky, oozing bubble gum, perhaps, but the point is taken. The decline in worldwide demand is only the secular story in this rapid decline in oil. The unwinding of large-scale leverage positions in commodities has meant the end of the spring’s most popular trade, one based on going long inflation (that’s commodities) and short everything else.
The market is vulnerable to more pressure, analysts say, but it is unclear how far the market will fall. The steady climb in oil prices through mid-September could be construed as a demand-driven rally, but markets tend to overshoot. “We’re down to where I thought we could be. Can we go beyond that? Certainly,” says Stephen Schork, editor of the Schork Report, a newsletter on oil/gas in Villanova, Pa.
In coming months action from OPEC could play a role, as the leaders of those nations would be more easily able to justify production cuts now. “The fundamentals here are bearish on the order of a six- to nine-month time frame,” Mr. Evans says.
