…once most of the former big fuel subsidizers have removed much or all of their subsidies, world demand for oil is likely to level off, or possibly even plunge. And if the latter scenario prevails, then the petroleum futures speculators will be running for the hills, in the midst of a bursting oil bubble, much like real estate speculators fled upon the bursting of our recent housing bubble in the States. All bubbles are self-correcting, one way or another.
Yes. Few people appreciate how much demand has been artificially spurred by subsidized fuel in many large countries. When their governments can no longer afford to continue to do so (as they can’t for long at current prices), watch crude plunge.
Another look from a financial professor…
http://www.gmu.edu/departments/economics/wew/articles/08/Futures%20Markets.htm
He makes some valid points
It’ll be interesting to see how it goes. There’s enough variables that could each pull the price up or down, that I’m not sufficiently confident to put my money where my mouth is one way or another. On the one hand, I’m skeptical about peak oil theories, and think that high prices now will help bring more supply onto the market, and I also agree that oil subsidies disappearing will also have an impact. But so will fundamental weakness in the US dollar and several other factors, many of which are beyond our control. While I think it’s pretty likely that sooner or later the price of oil compared to other commodities (say precious metals) is going to go down, that doesn’t necessarily answer which way way the dollar denominated price will go.
~Jon