A lot of people are talking about an oil bubble - I have a small amount in emerald energy, which has rocketed after 8 years of going down.

Is now the time to sell? A lot of people (including Soros) are talking of an oil bubble.

For my part I think it is probably in a long term bull over the next 10 years, but likely to fall back quite a bit in the short term. Any other views?

Not according to energy investment banker, Matt Simmons who believes oil is extremely cheap at these prices and is likely to double or more from here.

There are caps on the oil price. Oil can made from the much cheaper coal. There simply isnt the infrastructure for doing so atm. As the price goes higher marginal fields are opened too. All this requires a belief in sustained high prices before the capital is spent to do so. As demand grows some demand switchs to alternates too. I have no idea how high it will go, but at $1000 a barrel you would see oil being made from coal.

Thanks for that link Zceb90. It has given me much food for thought.

Governments are using commodity traders as scapegoats.

Q. What two commodities have the biggest price increases?
A. Iron ore and rice.

Q. Can you easily speculate on either?
A. No.

If you think oil is expensive now, wait for when Israel attacks Iran.

I am going to make a psychic prediction here and say............water. Thats the next place they will go to fleece the worlds people of their money. The buy up or privatization of water has already begun, and in about 10-20 years, you will see the fleecing begin.

I, for one, do not buy the argument that oil will drop to $50 a barrel. I do not believe that the price of oil is jumping because of pure production capability/demand issues. That is one factor, of course, and it cannot be overlooked or ignored, but nor should the fact that taking Iraq as an independent producer out of the picture allows for better control of price. (Lowered competition in the market) Which, in my opinion, is the very same reason USA want Chavez out of power in Venezuela. Big oil doesn't like independent producers doing what they hell they want with the price of their oil. It forces them to lower their own prices to be competitive.

The third factor besides supply and demand is oligopoly and price fixing. Thats the real reason we will not see a return (except perhaps for brief periods to avoid an investigation/political reasons) to $50 a barrel oil. The more rogue producers they can knock out and take control of, the more consistently they can fleece us.

I would say it is a gigantic latex balloon...

As a sample, Crude oil rose from a six-week low as a tropical storm headed toward the Gulf of Mexico and Iran, the world's fourth-biggest producer, resisted demands to suspend nuclear research.

Crude oil for August delivery rose as much as $3.17, or 2.5 percent, to $132.05 a barrel on the New York Mercantile Exchange. It was at $131.32 at 1:13 p.m. in London.

Remember those times when we had oil at $60 per barrel just last year? Boy, if you bought by that time now you must be very rich

Cheers!
Barbie

If you look at the 30 year price history for oil, this is the only oil shock that hasn't had a sudden spike where prices rocketed 100%+ literally overnight (like in 1973, 1979 and 1991).

My guess is that we have gone past peak easily obtainable, good quality oil, and high prices are to stay.

Although there is plenty of oil left, it is the wrong type (remember that oil needs to be refined to make petrol, aviation fuel, fertilizer etc.), or costly to extract, or in countries where foreign investment is fraught with danger (well that's pretty much all of them except for the UK, USA, Canada and Norway!!!)

There may be an element of speculation, but I would think we're on a long, long upward slope .

I am not an expert on oil, but to me this looks just like a good old fashioned bubble, with people attempting to justify the price saying that it is different this time. Now where did I hear that before!! That is not to say the bubble will burst any time soon, but I have a feeling that at some point it will.

DrGUID is correct, it will be very different this time. Here's a few of the major factors at work:
1) The oil production peak must, after a time lag, follow the discovery peak....and the latter occurred in 1964.
2) Hundreds of millions in Asia etc are consuming oil for the first time whereas in the 1970's Asian consumption was minimal.
3) The best oilfields, especially those in business-friendly regions, are significantly depleted - US, North Sea etc.
4) Future prospects will be smaller, of poorer quality and in areas mostly off-limits to investment by IOC's (who are better at exploiting reserves than the majority of NOC's).
5) Net energy is falling steadily - it's taking ever more energy to extract oil.
6) Flowrates, not reserves, are key; in particular unconventional oil is hard to extract at high rates.

I fully accept that oil price could fall back to $100 or even $80/bbl but is extremely unlikely to do so on the back of supply increases. Instead such price falls would be precipitated by a major economic downturn in which case the impact on consumers is similar to that of high oil prices and no recession - many consumers will be priced out of the oil market. As depletion advances and Asian / OPEC consumption increases millions more will be priced away from oil in OECD nations each year whether price be $100 or $200/bbl.

So how can you say oil is not a bubble but housing is? You say that oil may drop back >40% from its peak as housing is predicted to by many, but we all say that the housing market is a bubble.

Much of the so-called 'demand' for housing disappeared once 100% mortgages at cheap rates were withdrawn - ask buyers to place a 25% deposit or face difficulties raising finance and high interest rates and we find many of these houses are not so wanted after all.

By contrast demand for oil is relatively inelastic and those struggling with mortgage debt still seem willing to pay for oil. Furthermore nearly half of global oil consumptiion (and nearly all of the demand growth) is coming from nations outside the OECD - India, China, OPEC states themselves and Russia. As of yet there are relatively few signs of a slowdown here, on the contrary oil consumption in Russia and the OPEC states is showing rapid growth.

Not least an issue with housing shortage can be addressed by building more or extending existing properties. That option does not exist for oil - the amounts available and scientfiic limits for extracting same were determined long before humans existed.

While this may all be true, are you saying this demand has only cropped up in the last 18 months, because looking at the oil price history it seeemed to take off from that point?

This is not a bubble in oil. The economists have been consistently wrong over the last 7 years on this. In the last 8 years oil has had one 50% correction and two 40% corrections. The crys were that it was a bubble...and then oil very quickly went on to make new highs. The same will happen again.

In the time the FED has cut interest rates in half, from 5% August 2007 to 2%, oil has doubled in value.

Also, yoiu are right in saying that the demand/supply issues existed well before this last run up...I think the USD and the FED actions have played a part in this last run up. However, the supply has hit a plateau, and demand is forecast to keep rising in the medium to longrun. All one has to do is look at the auto makers car sales in the BRIC nations and Opec nations...they are at all time highs. China, India, Brazil, Russia...some recent reports...

"It's a remarkable landmark for Russia's development as a consumer market. According to figures published July 9 by consultancy PricewaterhouseCoopers, Russia recently overtook Germany to become the largest car market in Europe. PwC notes that some 1.645 million new cars were registered in Russia during the first half of 2008, compared with 1.63 million cars in Germany. "The Russian auto market is still witnessing an astonishing growth," the report concludes."

"Anfavea said that new car production reached about 1.68 Million units in H1 2008, an increase of nearly 21.3% over the same period last year. Output in June 2008 reached around 303,800 units, a rise of about 4.8% and 23% as compared to May 2008 and June 2007 respectively. The domestic auto sales grew by about 30% over H1 2007 to reach 1.41 Million, while domestic auto sales reached around 256,000 in June 2008, an increase of nearly 5.8% and 28.8% over May 2008 and June 2007 respectively.


And Saudi Arabia is the biggest importer of BMWs and Mercs...

Also oil is traded on a global market...All countries will have to compete on a global market. Well the US biggest market is Mexico and Canada, where they import oil from...Take alook at the chart of Mexicos Canterall Field...Production has dropped 25%...

Another point I want to make is the role of structural changes. Supply has peaked out in the last few years. Supply and demand were both growing side by side until 2005 I think. However, the supply line has been flat now for a couple of years. Well it takes time for people to realise what structural change has taken place. It is only now being realised by more and more people, that supply has stopped growing, and demand is still going to go up in the longrun. As you can only see that supply has peaked with the benefit of hindsight...

Matt Simmons for me is the most well versed in this field. He knows the industry inside out. He said the economist dont realise that it takes 10 years for a new field to be brought online....So by the time any new major fields ae brought online the existing fields will have already been depleted. So it is the daily supply and daily demand that cant be met.

At very best case scenario, is that they might be able to increase supply production for a short time to 89 million per day. That a big if...

Another point is that in the last year, the price of an oil rig to rent is has doubled from 150,000 USD a day to 300,000 a day. There are major shortages of oil rigs...So even if they do discover new fields, there are shortages of rigs...The industry is rusting quite literally away.

Also the type of oil available plays a major part. It is pretty much confirmed that a great deal of the easy oil has been used. So the costs of production are going up also...

The further and continuing depreciation of the USD is playing a part as no one wants to hold cash.

After this correction I am buying in again...and in the longrun, I really can see oil at 300-500 USD... The fact that so many people are calling it a bubble makes me laugh. The same people who couldnt spot genuine bubbles in the stock market and housing market and now calling a bubble where it doesnt exist...But I feel more comfortable that people are saying it is a bubble...isnt it in the markets that you want to be doing the opposite from the other 90% alot of the time...IS it not that money goes from the many to the few...?

"If a betting game among a certain number of participants is played long enough, eventually one player will have all the money. If there is any skill involved, it will accelerate the process of concentrating all the stakes in a few hands. Something like this happens in the market. There is a persistent overall tendency for equity to flow from the many to the few. In the long run, the majority loses. The implication for the trader is that to win you have to act like the minority. If you bring normal human habits and tendencies to trading, you'll gravitate toward the majority and inevitably lose." - William Eckhardt

"But I feel more comfortable that people are saying it is a bubble...isnt it in the markets that you want to be doing the opposite from the other 90% alot of the time...IS it not that money goes from the many to the few...?"

Indeed, and the fact that I see a large number of threads on here saying I want to buy gold/oil/commodities indicates that now is not the time to go long.

But if you think of the extreme bubble of the NASDAQ there were literallu thousands of Mutual funds where you could buy tech stocks...The people on here are quite well informed in my view...they still represent the minority. Today there are relatively few commodity funds unlike stocks and index trackers. Yet the man on the street is happy to be sold his Abbey National FTSE tracker ignorant of the fact we are in 15-25 year secular bear market for the FTSE. 200 years of capitalism have shown that stocks and commodities move inversely to each other. We are only in year 7 of this commodity, oil,gold bull market. Paper assets will greatly under perform real assets. It stands to sense.

You are right in that lots of people on here are talking about buying gold and commodities,however, as with all commodity bullmarkets the corrections are vicious and usually shake out the weak hands. Unless they have great conviction in how long this bull market will last, the 40-50% corrections if they enter at the wrong time will leave them feeling burned and they will be shaken out..declaring that it wasn't a bull market only to see commodities make new highs again in the future. Once my granny or one of my aunts gets a job as a commodity broker saying they only ever go up a decade or more from now then I will exit the end of the bull market,lol.

"The people on here are quite well informed in my view...they still represent the minority"

Is this the same people that were asking how to short housebuilder/banks a few weeks back, shortly before they went up 50-100%. Where were all the posts saying buy oil/gold/commodities before they started their ascent?

"Yet the man on the street is happy to be sold his Abbey National FTSE tracker ignorant of the fact we are in 15-25 year secular bear market for the FTSE"

I think this is a matter of opinion. For me, the FTSE has never looked cheaper in the last 15 years. PE is 10 and yield is 4.8%. I believe the exact opposite is true of gold etc. This is not to say the FTSE will recover any time soon, and gold plummet, but on a 20 year horizon, I know where I am placing my money. If you look at the big market caps in the FTSE, the majority are global players, so they will be less likely to get hammered if there is a UK downturn. of course they will suffer is there is a global downturn, but is the same not true of oil?

I ll get back to you on this Noel. I have some perspectives on this maybe you will find interesting.

one word: yes

The short view is interesting:

Short View

I maintain my view that oil is in a downward correction, but it will resume its long upward trend later in the year. IMHO we are facing inflation (now) > a deflation scare (Autumn?) > more inflation (next year?) .

The people posting here are fairly specialist. Take property - everyone I know my age (early 30s) has bought a house, and quite a few did BTL also. I only know one other person who is buying commodities and gold, everyone else thinks it is risky and I am going to lose a load.

Once everyone is buying gold and commodities, then is the time to dump surely. So far it is a few odd balls.