Is Crude Oil a Bubble Ready to Burst?

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In an interview with The Daily Telegraph, one of the world’s biggest hedge fund traders, Mr George Soros said although the weak US dollar, depleting supplies from ageing oil fields, government fuel subsidies, and record Chinese and Indian demand could explain the parabolic surge in energy prices, the crude oil market is also significantly inflated by speculation. “Speculation is increasingly affecting the price, which has a parabolic shape, which is characteristic of bubbles,” he said.

“A trend in motion, will stay in motion, until some outside force, knocks it off its course!” After watching the parabolic rise in crude oil prices, doubling from a year ago, to above $130 a barrel last week, central bankers who under-estimated the power and resiliency of the “crude oil vigilantes”, are now praying for a “Bubble” that is destined to burst under its own weight, and at a moment’s notice.

In an interview with The Daily Telegraph, one of the world’s biggest hedge fund traders, Mr George Soros said although the weak US dollar, depleting supplies from ageing oil fields, government fuel subsidies, and record Chinese and Indian demand could explain the parabolic surge in energy prices, the crude oil market is also significantly inflated by speculation. “Speculation is increasingly affecting the price, which has a parabolic shape, which is characteristic of bubbles,” he said.

However, Soros warned that the oil bubble wouldn’t burst until both the US and British economies slipped into recession, after which, oil prices could fall dramatically. “You can also anticipate that the bubble will eventually correct, but that is unlikely to happen before the recession actually reduces the demand. The rise in the price of oil and food is going to weigh and aggravate the recession.”

It’s dangerous to pick a top in a raging bull market, since bubbles can inflate more than anybody could have imagined. On May 20th, T-Boone Pickens told CNBC he expected crude oil prices to keeping going up. “I think we’ll get to $150 this year,” he reckoned. The next day, soon to be deposed Israeli PM Ehud Olmert called for a US naval blockade of Iran, and if that happens, crude oil could hit $200 /barrel.

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