Market Blog can't help but notice the number of bloggers and other commentators arguing these days that the soaring price of oil is unsustainable and looking more and more like a bubble.
The latest comment comes from the Stock Market Prognosticator blog, which argues that oil “shouldn't” rise to $200 (U.S.) a barrel: The price of oil has risen beyond its underlying fundamentals and is now in the hands of speculators – meaning that the price could rise higher unless rational thought prevails.
The way the blogger sees things, demand for oil could flatten out, especially if the relationship between price and demand in non-linear – that is, a 1 per cent increase in price could have a far greater impact at some point than a 1 per cent decrease in demand.
As well, the Prognosticator notes that many countries, including China, are currently subsidizing oil, maintaining prices even as the real price of oil rises. Already, some of these countries have pulled out their subsidies. If others follow suit, energy demand could take a hit, causing oil prices to pull back.
“Eventually someone in OPEC will stand up at a closed door meeting and say this: is it really wise for us to have oil so high for so long?,” the Prognosticator said. “Won't this eventually lead to permanent long term changes to demand as countries adjust their economies? Won't it stimulate the growth of alternative fuel sources? Or might it cause so much inflation that it will crash the world economy?”
