The Oil Bubble

I figured I might as well talk about it, because it’s really affecting the stock market right now. Oil is completely over priced. The demand is artificial right now -it’s just a bunch of speculators buying it because it’s going up. The law of supply and demand applies to this situation and investors are over reacting to the increased demand expected in the future. If you look at at an actual graph of supply and demand you can see that the current demand does not support the current price.

There has not been an explosion of demand from China and India in one year, there has just been an explosion of speculators buying on the idea that oil will go up because of this increased demand and dwindling supply. Oil prices will come down, a lot. I feel that the $100 range is appropriate as a peak price right now, not the mid $130’s.

This over-reaction in oil prices has brought back another reason for volatility in the stock market. Investors are worried about how this increased cost is going to affect business and consumers alike. Oil is finite, and the world’s demand is increasing far more than the supply. But, this does not happen over night. It has been happening for years; it’s just that it’s finally reaching the conscience of investors. Then it will reach the conscience of consumers, and there will finally be a push towards sustainable energy that we have and will have the technology to make the switch.

http://tradingrite.com