Debate over oil bubble rages, but markets still spiking

The debate over the spike in oil prices is raging on Seeking Alpha.com where Jordan Kahn has sparked a debate by showing charts of the bubbles in the housing and grain markets.

They show how bubbles pop sooner or later. The Black Swan says no one can predict prices. But bubbles pop. And despite the protests by the desperate longs who don’t want oil prices to drop, we have a bubble.

Be sure to read the comments that follow some of the articles about oil on Seeking Alpha.com. It’s always interesting to see how people who are long or short a stock or commodity leave their brains at the door. They’re like directors of not-for-profit organizations.

No matter how deeply invested you may be in a trade or an idea, you’ve got to be able to step back and look at the situation objectively, or you’ll lose your shirt. Some people never learn.

At this point, the bulls are focused on what they see as a limited supply of oil. They may be right. The numbers sure make it appear that increasing oil production will take a long time for both logistic and political reasons.

But price also affects demand.

And demand doesn’t have to go down to prick the oil bubble.

All that needs to happen is a shift in expectations.

Once the markets decide that consumption will be contained by price, prices will drop. The bubble will be pricked.

Are we at that point? The markets aren’t saying so yet, but the growing commentary by bubble skeptics suggests that perceptions are changing and the adults may be gaining a hearing even if they still aren’t in control of the oil futures markets.

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