The Real Cost of High Oil - And Why it's a Bubble

I'll go ahead and put myself on a limb here - I believe that oil will be below $100 a barrel by the end of October.



Let's look at the following circumstances:

- Demand is down 5% per day according the CNN

- People are becoming very conscious about oil consumption

- Gas guzzlers are out and small cars are in

- Airlines are cutting 10-20% of their flights (this one alone will save a TON of oil)

- As inflation rises in the US, FFR increases will strengthen the dollar resulting in less usage of oil as an inflation hedge

- The Olympics will be over in China, and China will stop stockpiling diesel oil

- Asian countries are removing their oil subsidies for oil consumers, resulting in increased prices for consumers, likely spurring conservation

Add up all these little pockets of demand that are going to disappear and we have the market forces to push oil back down below $100/brl, but we shall see.

***Since I wrote this article, oil in the past week has dropped $12/brl, the largest one week drop in history. We're now about $133/brl and I expect the drops to continue***