Monday, May 05, 2008

Oil: Supply & Demand or Bubble

The Christian Science Monitor takes a look at the new economics behind oil, namely whether supply and demand are the primary driving factors behind prices or if the weak dollar and speculation are creating high prices. Personally, I've long been a believer that oil is experiencing a bubble, but every prediction I've made has been wrong. I'm now of the opinion that the reason I have been wrong has been twofold. First, the dollar's decline has been more significant than I first anticipated. Second, and perhaps most importantly, the conventional wisdom has developed that oil and other commodities are safe investment havens in very uncertain economic times. I don't think I agree with that conventional wisdom, but until the general investment community becomes comfortable with the U.S. and global economies, this bubble will continue to grow. Eventually, it will burst, and it will burst big, but we aren't close to that point yet.

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