Price Bubbles Always Burst: Speculative Oil Bubble Will Eventually Burst

Crude oil is above $120 per barrel and some analysts think it could top out between $150 and $200 (green-dashed line on chart). No one knows for certain how high and for how long oil prices will climb, but one thing is for certain; oil is in a speculative price bubble. And all prices bubbles eventually burst.

The chart of West Texas Intermediate shows the steep upside pattern of spot prices - a pattern that cannot be sustained for long.

When oil prices do come down, it will be difficult to predict where they will settle because of the ever changing geopolitical factors that help determine its price. But the constant banter about peak oil suggests that a price correction is in the future.

Posted May 15, 2008.