Oil ran up to $135 a barrel increasing in price nearly daily. This despite drastic drops in US driving over the past year. Oil may be ready to crash as prices have dropped by $10 a barrel in the past week. Whether this week or next year, prices will crash eventually.
This is the third time in the last 15 years that we have seen this scenario. It seems to me that there is a tremendous supply of dollars chasing the next big thing. In the 90's the stock market marched to new highs due to "irrational exuberance", companies like Enron and WorldComm created new accounting to rack up "profits". When the curtain was pulled back and everyone realized the people pulling the strings didn't have the fundamentals, the bottom fell out.
In the early part of this decade the same scenario played out in real estate. The Wall Street gurus found new hedge founds to sell sub-prime loans and run up housing prices to irrational levels. The greater fool theory kept people buying until some started defaulting. Suddenly the curtain was pulled back again and look at the mess the real estate market is in.
I have no doubt that something similar is afoot in the commodities market. Oil prices are in the irrational range based on my years of working in oil research. Will we find new "funny" structures that traders have created? Possibly. Then Congress will hold some hearings and the money men will move on to some other way to find a way to invest all these excess dollars.
What that will be, I have no idea, but I'd bet money that it will happen. The world is awash with dollars.
Update: An interesting article I found several days later predicting $50-$70 per barrel oil in our near future. Also comparisons with housing bubble.
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