As the price of oil heads ever higher ($131.57 Friday close for Brent Crude), we are led to believe that this is a fundamental supply and demand issue. The supply is drying up, and getting ever more expensive to extract, and the demand is growing unchecked, with the entry of China and Russia into the oil hungry nations.
A colleague of mine pointed me to an article on Bloomsberg which suggested that the current price is more to do with speculation, than with core supply and demand issues. Specifically, speculators are buying July futures to cover their short positions. While this is a supply and demand issue of sorts, it suggests that the real issue is not the fundamental supply.
I guess the next few weeks and months will tell us whether this is the case or not. If it’s true, it would suggest that the artificial bubble that exists now (if that’s what it really is) is likely to burst, and oil prices will crash.
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