Real Time Economics at the WSJ has a nice summary today: Oil Bubble? The Debate Rages



For reference, here is Justin Lahart's article today: Commodity Prices Soar, But Are They in a Bubble?, and Professor Hamilton has a new research paper on the subject that covers all the key issues: Understanding crude oil prices



First, what is a bubble? Back when I was arguing there was a bubble in housing, I wrote: Housing: Speculation is the Key

A bubble requires both overvaluation based on fundamentals and speculation. It is natural to focus on an asset’s fundamental value, but the real key for detecting a bubble is speculation ...

It is far from clear that the first part of the bubble definition — prices in excess of their fundamental value — is in place. But the second part — that people are buying in anticipation of selling at a higher price — certainly is.

[T]here is a possibility that what has looked like peak oil to some observers (something I believe is coming), was actually GCC countries investing by not extracting oil. If oil prices start to fall, and with rising expenditures, the GCC countries might increase production - causing prices to fall further.

"I keep no secret from you that when there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'."

The Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought.

...

For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.



The decision to rigorously survey supply -- instead of just demand, as in the past -- reflects an increasing fear within the agency and elsewhere that oil-producing regions aren't on track to meet future needs.

From Real Time Economics:I'm not so sure. Speculation requires storage - something that was obvious in the housing bubble, but isn't so obvious for oil.From Real Time Economics:Frankel's argument is similar to the one I suggested here ( based on research from Professor Krugman!): Petroleum Prices and GCC Spending So is oil a bubble? Is there evidence of speculation and storage? Some people have cited recent comments by Saudi Arabia's King Abdullah as evidence of storage, from Reuters: Saudi King says keeping some oil finds for future I'm skeptical of this comment (and similar comments from Saudi officials over the years), because I think it is intended for domestic purposes.The alternative to speculation is that oil prices being driven by the fundamentals of supply and demand - with strong growth in global demand, even as demand weakens in the U.S. - and suppliers are struggling to keep up.On supply, from the WSJ: Energy Watchdog Warns Of Oil-Production Crunch Oil prices aren't an obvious bubble like housing or tech stocks. It seems the key question is: Are the oil exporting countries producing as much as possible - or are they investing by cutting oil extraction (and leaving the oil in the ground)? The lack of transparency for the GCC countries, and several other oil producing countries, makes it unclear.