I went to an investment conference* about a month or so ago and listened to a couple of the big guys from different investment houses (Lynch, Schwab, etc). The Lynch guy** said that he expected oil to go down to the 80 range within a year or so. The rest of the folks I listened to agreed that the prices should go down, though they didn’t give a price. They all basically put the inflated price on speculation, though they did note that increased demand is a part of the price increases, but they all thought it was a small factor.
Slee
*The Money Show
** I don’t remember the guys name but his title was ‘chief economist’ or something similar.
OK, I watched the video. I don’t disagree at all with the idea that speculation is a bit part of what’s going on. But speculation != speculative bubble. Corzine didn’t really say why he thought it was a bubble.
I’m not convinced there is a speculative bubble. It’s not always at all clear when there is one, of course, but signs like “everyone’s making money in real estate” or “everyone’s making money on the stock market” are the sort of things you should be looking for. A bubble is when people believe prices will continue to rise and buy on that basis until prices get silly and everyone holding loses. I don’t see any sign of mug punters getting into oil as a get-rich-quick scheme.
If there is one, here’s what will happen: it will stop one day, the price will crash and a lot of people will lose their money. And maybe better regulatory oversight might have helped insofar as it would require some transparency in trading, and it would be clearer now who was taking the bets and how highly geared (leveraged) they are.
But as I’ve said, I think what’s going on is a little bit of this: of people think the price of oil is going to be higher in the future and this is driving up today’s price. (that’s normal, stabilising speculation) and a lot of this: steepish demand and supply curves with strong demand growth and feeble supply growth.
A couple of notes on these: 1. Krugman has no problems with the idea of speculative bubbles. He certainly banged on about them at length prior to the recent US housing debacle. 2. He is a top economist. Prior to his scenery chewing about the Bush administration, he was an absolute lock for the “Nobel prize” in economics. 3. Calvo is also a top guy. 4. The “where’s the physical hoarding” question is a pretty good one in addressing the “bubble”. 5. Despite what Krugman says about Calvo’s attempted refutation of the “where’s the physical hoarding” question, Calvo’s concerns about inflation risks are real enough.