3.6.2008 8:47 AM

Is The Oil Bubble Going to Pop?

OPEC Derides U.S. Economic "Mismanagement"

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Photo: darrell.barrell / Wikimedia Commons

By Dan Shapley

OPEC blames high worldwide oil prices on U.S. economic "mismanagement" and rebuffed the man responsible for it, as oil prices shot up above $104.50, another record.

President Bush wanted OPEC to boost oil output, but for the second time in as many attempts, he was denied.

OPEC seems to have the facts on its side. U.S. oil inventories are high, and the cause of the run-up in oil prices is a combination of a weak dollar, security concerns around the world and – in the back of wary investor's minds – the prospect of peak oil. Beyond that, it's an oil bubble, filled with speculative bets that have an outsized effect on the rest of the economy but don't reflect the true cost of energy.

In that sense, it's not as if Bush can be blamed for the mismanagement of the U.S. economy. It was real estate investors and speculators (ie, greed) that triggered the mortgage crisis that has hobbled the economy, and now it is oil speculators (ie, greed) that is triggering a spike in oil commodity prices.

The question then is, when will this oil bubble pop? If it's just speculation driving up the cost, as many analysts agree it is, then it will pop. If the supply doesn't hold up over the longterm, however, then the true cost will rise to meet the speculative cost.

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