Don’t Buy Crude Oil From A Snake Oil Peddler

J.J. Jackson* | July 5, 2005

Matt Simmons who is an oil analyst is predicting the possibility of $100/barrel oil by winter according to WorldNetDaily. Of course this is like saying aliens MIGHT land on the White House lawn before the end of the year. “We could be at $100 by this winter,” he said citing what he called “the biggest risk we have ever had of demand exceeding supply.”

I say don’t hold your breath although I am sure that if this ideas gets planted in the head of enough speculators it could become a self fulfilling prophecy as such people artificially drive the price higher and higher. Oil demand is certainly high and we have already seen oil prices push up to $60/barrel but the price has yet to stay there. Why? Because it is all speculation and when the price is based on speculation without anything real to back it up the price eventually comes back down. In other words you can only fool people so long.

Right now the entire price of a barrel of crude oil is driven based upon the expected future price of that barrel of oil as investors scramble to make a profit. But much like what we learned when the dot com bubble burst, we realize that guessing at future demand is a risky proposition. I won’t say that $100/barrel crude wont happen, but I feel more than comfortable saying it is highly unlikely.

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