I’ve heard this too many times over the past year to put much stock in it. However, here’s an article arguing that oil is in a bubble and likely to drop fast and hard to $50/barrel once it starts down. An interesting argument made by in the article is that the drop in oil will have a negative impact on the economy. I find that hard to agree with.
The US uses about the equivalent of 400 million gallons of gasoline daily. That amounts to about 4 gallons per day for each of the 110 million households. If oil dropped to $50/barrel, that should put gas back in the range of $2/gallon. How can reducing the cost per household by and average of about $110/month be a bad thing?
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Theoretically, I think that analysis is correct. The price of oil is in a bubble, and when it pops I do think there will be a big correction. The problem is that investment dollars are flowing into oil (and gold) because investors aren’t feeling very safe about other investments. Until they venture back out of their safety positions, I can’t see the bubble bursting.