How High Will Oil Go?

CNN Money is reporting that Alexei Miller of Gazprom, the largest energy company in the world, that oil will rise to over $250 a barrel.

"NEW YORK (CNNMoney.com) -- If you think $135 oil is bad, you ain't seen nothing yet. That, at least, is the take from the head of the world's largest energy firm.

Alexei Miller, the CEO of Russian oil company Gazprom (OGZPY), told reporters at an event in France yesterday that he expects the price to rise to...wait for it...$250 a barrel by 2009."

Interesting prediction, given that oil is predominately reported by main stream media to be in a bubble. Even CNN had to say that such a high price of $250 a barrel is highly unlikely.

But what if find interesting is that oil is called a bubble by mainstream media and a bubble is never defined. References to the tech bubble in the late 90's and the most recent real estate bubble are offered as comparisons, but no still no definitions are given.

The article goes on:

"Many economists, oil analysts, market strategists and fund managers I've spoken to in the past few months agree that speculation is a big factor behind oil's surge. The price of oil may be artificially inflated by as much as $20 to $30 a barrel because of hedge funds and other traders making bullish bets on crude and bearish bets on the dollar.

In other words, oil should be trading closer to $100 to $110 if supply and demand were the only issues in play. Others say the "fundamental" level is even lower."

Whatever happened to $90, $80, $70, $60 a barrel? It seems as if we have skipped over those numbers. I would agree that there is likely a $10-$20 premium on oil because of speculation. And we can certainly add another $10-$20 as a war premium. But that would be the case with any market. Such is the nature of capitalism. The oil market is simply correctly pricing risk with supply and demand issues, weather, war, etc...this is the nature of capitalism.

Andy