Friday, August 08, 2008

The price of oil

Chatham house has predicted an oil crisis in which oil price will top $200 a barrel. Is this a real threat or is it a bubble?

'A "supply crunch" will affect the world market within the next five to 10 years, the Chatham House report said. While there is plenty of oil in the ground, companies and governments were failing to invest enough to ensure production, it added.'

In my view we are witnessing a bubble generated by speculators seeking to take advantage of attempts by various governments to interfere with the market. It looks as though the bubble may have burst. Gas prices are artificially tied to oil prices and following a recent price hike customers are being advised to fix their prices in forward deals that will hold until 2011. I was caught with a fixed mortgage at 13.5% back in the inflation crisis of the early 1990s. I'm not going to fix my gas price.

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