$130 Oil Bubble: Some Support from the Press

Just as I thought the media is now saying that $130 oil is starting to form a bubble.

"This thing has to turn around, it's insanity," said Peter Beutel, an oil analyst at the consultancy Cameron Hanover. "Ultimately we'll see a huge collapse in prices."

Beutel doesn't know when that collapse would come, but he predicts it will be within weeks or months, not years.

But he doesn't know just what might bring it about - perhaps the Federal Reserve increasing interest rates or a big drop in consumption as people worldwide can no longer afford to fuel their cars or heat their homes.

"If these prices stick, you may see whole neighborhoods where people abandon their homes," he said predicting that in the Northeast U.S. it will cost $5000 to heat a home unless prices fall.

We are already seeing all sorts of signs that demand is decreasing in the US and in Europe. China even seems to be slowing its demand to growth of only 4.7% according to the IEA. While Indian Oil Demand remains at 8-10% demand growth but seems to be mostly sustained by Indian Government intervention. The top Indian Refiner has losses on paper of $55 million per day and the Indian government will absorb 80-85% of that loss. This is of course with oil at $117 a barrel. If oil stays at $135 a barrel then you might see either retail prices rise and crimp Indian retail demand or the Indian Government pull back on the intervention.