Danny Taggart's Blogarama

A more-or-less daily dose of news, politics, techmology, and any random thoughts that pass through my head.

Thursday, April 07, 2005

Is there an oil bubble?

Interesting discussion on Larry Kudlow's blog about whether oil prices are in a bubble. I am next-to-ignorant on this topic so I'll keep my observations brief.

Ok, so oil prices have climbed up a lot recently. But they're not outside of historical norms (real dollars). Goldman Sachs predicts oil will peak at $105 in 2007, but Kudlow thinks it's hokum straight out of the dot com era. So how can we tell where prices are going?

I'm assuming oil prices are being and will be driven primarily by geopolitics in the near future. And I'm also assuming that the people most knowledgeable about geopolitical issues, and most likely to have a feel for the future, are the policy makers in the US government. And currently,

1. They are not releasing oil from SPR. On the contrary, they're buying.
2. They finally seem willing to open ANWR to drilling.

If the geopolitical situation really is such that oil prices will decrease soon, they would be selling SPR oil (and buying back at lower prices). ANWR is a bit more interesting, because it would take at least some time for drilling to begin, and for the actual oil to make it to market. So, this situation kind of indicates to me that policy makers expect oil prices to keep rising for the foreseeable future. If they don't, then we've bought a lot of expensive oil for the SPR, and we've made an unnecessary and possibly dangerous (in terms of future emergency and national security needs) decision to start drilling in ANWR. We'll see what happens.