OIL BUBBLE INSANITY CONTINUES: OIL TRADES ABOVE $140

Crude Oil $139.64 a barrel 2:29 PM ET 06/26/2008

In three months oil has gone up nearly 50%.

IT'S NOW TRADING ABOVE $140.

This is INSANE.

A BUBBLE.

Especially since bad macroeconomic news should be driving the price DOWN, not up: RECESSIONS WEAKEN DEMAND FOR ENERGY.

Even a weak dollar can't explain it all, as a weak dollar improves exports and can increase economic activity.

The only possible rational explanation is that market movers think an attack on Iran is imminent and that Iran's retaliations will cripple Gulf Oil.

Or that hedge-fund trading formulas have a skewed premise - that tells them to buy oil when the dollars weakens as if oil was a safe hedge.

It is not: if the USA goes into recession, then the world does - and global oil demands declines.

REPEAT: oil should NOT be above $100, and probably should be about $70.

Oil began it's recent SURGE at the same time the US began it's SURGE into Iraq - which has been overwhelmingly successful.

It has gone UP UP UP ... FAST FAST FAST.

It must come down as fast, too.

Or faster.

It will, too.

Sooner than you think.

UPDATE: I HAVE POSTED THIS CHART BEFORE. IT SHOWS HOW OIL PRICES ARE HISTORICALLY SKEWED:

BRACE YOURSELF:

We’ve compared the spike in oil and other commodities like gold with the decline in the dollar since the fall of last year, and, up until recently, there was an outstanding correlation — going long oil, gold or other commodities was pretty clearly an effective way to short the dollar in an almost risk free environment. Something has changed, however, in recent days.

Since early April, gold and oil have moved in opposite directions. [GOLD IS THE RED LINE.] Gold’s price, in our view, has retreated as the market has judged, correctly, that the dollar’s decline is nearing an end for multiple sound reasons (a halt to interest rate cuts, global slow growth or recession, etc.). Meanwhile, oil’s price has become completely untethered from reality in an insane speculative frenzy, even versus other commodities (which have had their own bull markets).

It’s over, or at least coming to an end, in our opinion.

AND NOTE THAT THE DOLLAR IS NOT DROPPING AS FAST AS OIL IS SURGING - (SO CURRENCY ISSUES ARE NOT DRIVING THE OIL BUBBLE); HERE'S A DOLLAR-EURO CHART:



FROM MARCH TO MAY - AS OIL WENT UP 50%, THE DOLLAR WAS RELATIVELY STABLE ---- CHEAP, BUT STABLE.

SO I ARGUE IT'S A SPECULATIVELY FUELED BUBBLE.

AND IT WILL CRASH.

YES CRASH. THINGS GO DOWN MORE EASILY THAN UP. HERE'S WHY:

• TO GO FROM 100/BARREL TO 150/BARREL IS A 50% MOVE UP.
• BUT FROM 150/BARREL TO 100/BARREL IS ONLY A 30% DOWNWARD MOVE.
• 30% IS AN EASIER/QUICKER MOVE FOR A MARKET TO MAKE THAN 50%.
  

SO... IT WILL CRASH SOONER THAN YOU THINK.