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Monday, April 21

the oil bubble

from WSJ.com Bears Baffled by Oil Highs
"...some analysts continue to warn that oil prices are teetering close to a steep fall -- at least back near $80 a barrel. For these observers who see the world's oil supply-and-demand balance loosening and weighing on prices, the red-hot rally is nothing short of astonishing.

"I personally think this is the mother of all bubbles," said Michael Lynch, president of Strategic Energy & Economic Research Inc., a consulting firm in Amherst, Mass. He expects prices to pull back to $80 a barrel by late June, and in the long run step down to $50 as pent-up supply in Iraq, Nigeria, Venezuela and other underproducing exporters starts to flow.

For Tim Evans, an energy analyst and inveterate bear at Citigroup in New York, that bubble is "still expanding," filled with sentiment that seems to ignore signs of what he views as a supply surplus through the end of this year.

"There's no supply-demand deficit," Mr. Evans said.

The case for lower oil prices is straightforward: The prospect of a deep U.S. recession or even a marked period of slower economic growth in the world's top energy consumer making a dent in energy consumption. Year to date, oil demand in the U.S. is down 1.9% compared with the same period in 2007, and high prices and a weak economy should knock down U.S. oil consumption by 90,000 barrels a day this year, according to the federal Energy Information Administration.

continued
I only hope that when the prices come down, that we consumers continue to consume less gas.


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