Has Oil Burst Its Bubble?

"Oil hits a new record high!"

We were getting used to that, weren’t we?

But as the price of a barrel ticked up, whispers about a bubble grew until they became deafening shrieks. "It’s all speculators!" was the cry. No less a speculator than George Soros said as much to the US Senate (which, let’s face it, was a bit rich of him, wasn’t it?).

The market seemed to be getting ahead of itself, as markets are wont to do. A correction was on the cards, or so said the naysayers.

Well, now the voices of caution seem to be having their moment. In the last two days the oil price has shed $10. This morning it was around $134.

Is this proof that the oil price surge was nothing more than a simple, common-or-garden bubble? Is said bubble now starting to pop? Should oil investors — so eager to get in over the last 12 months — now start a stampede for the exit?

We’ll get to that in a sec. But first, let’s take a step back and assess.

There are two ways of looking at this. We can look up. Or we can look down. Looking up is dizzying. Looking down is plain scary.

I’ll explain what I mean.

The bulls’ case (they’re the ones looking up... naturally) is fairly straight-forward. Oil is both essential and finite. The demand for it is set to rise as the people of the world grow both richer and more numerous.

Supply is constrained — not only by the fact that there’s only so much oil in the ground, but also by logistical considerations. There’s a shortage of rigs, for example, so even if you know where to get the stuff, it’ll be a while before you can.

Great! Buy oil then! Who knows how high it will soar?

That, at least, is the view looking up. But take a look down, and we see the ground is already far below us.

Hugo Dixon of Breaking Views reckons the long-run marginal cost of producing a barrel of oil is around $50. So producers could turn a profit at, say, $60 a barrel.

It’s a long way down — get on the wrong side of market sentiment and you’ll land with a splatter.

So, is it not time to be out? I’m not convinced, but then regular readers will know oil is not my patch.

At a time like this, I turn to Fleet Street’s commodities expert Garry White. Garry’s been back and forth from his Bloomberg machine like a maniac the last two days. It’s not that he’s panicking; he just loves the drama of it!

Garry’s identified three reasons he believes were behind the falls.

Find out what they are, and where our sector expert believes oil is heading next.

Why you could make big profits from India’s falling market
By Manraaj Singh
Chief Investment Strategist, Profit Hunter

India’s economy is white hot. It’s grown by more than 9% every year since 2005.

So all investors who are serious about growing their wealth in the long-term need to have exposure to this economy. But right now its stock markets are getting hammered by the global sell-off. They’re down by over 38% since the beginning of this year.

That could mean big profits for UK investors. Because some of the fastest-growing Indian companies that need to raise cash could soon be heading for a listing on the AIM market.

In fact, I’m now looking at two shares that could give us chance to tap into India’s amazing growth story while keeping our money right here in London.

You can read Manraaj’s article in full HERE.

Until next time

Ben Traynor

PS I’m on holiday tomorrow, and also next Monday and Tuesday.

But don’t worry — you’ll still receive Fleet Street Daily as usual. I’ve lined up a trio of glamorous replacements, just for you...

Tomorrow, commodities man Garry White is in the hot seat. Garry will be sharing his views on population — and why this "Greatest Threat To Civilization" (Goldman Sachs) could also be the greatest investment opportunity of the 21st century.

Then, on Monday, emerging markets expert Manraaj Singh reports on the tide of petrodollars flowing to the east. Ever wondered how much all the oil in the world is worth? Manraaj will tell us, next Monday.

On Tuesday it’s the turn of Theo Casey. Hong Kong-born Theo will be taking a light-hearted look at what the rest of the year holds for the markets — with the help of the Chinese zodiac (I’m not sure what this means either... but I’m looking forward to finding out!)

And I’ll be bringing back a present when I return on Wednesday. Details of how you can download a completely free special report, all about how to make rapid profits in a falling market.

See you next week!

Today’s Daily Reckoning — Has oil finally topped out?

Yesterday, the price fell another $4 — to $136. Still, of course, not far from its all-time high. But sliding...

"Oil is a bubble ready to pop," say some analysts. "No, oil is merely responding to supply and demand," say others.

What’s the real story?

As usual, you can count on us, here at the Daily Reckoning, to give it to you --straight, unvarnished and unmitigated.

Trouble is, the real world always has a bend to it. Everything has a lacquer on it. And mitigations are everywhere.

You can read today’s Daily Reckoning in full HERE. P.S. If you enjoyed this article then we encourage you to sign up for the free Fleet Street Daily eletter. Learn what you can expect from today's markets -- and how to prosper in the face of uncertainty. You won't find more thought provoking writing anywhere on the Internet.

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Has Oil Burst Its Bubble?

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