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Monday, January 12, 2009

Oil Bubble: How we got there

Now with oil bubble deflated, 60 Minutes yesterday had a nice review of how we got there.  The conclusion is that it was largely driven by speculations and deregulation.  

Like any other bubbles, this oil bubble had a nice attractive story/theme: demand from China and India. But what eventually drove oil price to $147 peak was not supply-demand equation, but human's greed.  Investment banks and deregulation just facilitated it. 

When comes to digesting this oil boom and bust, I find it always useful to read Jim Hamilton's paper on understanding oil prices, and of course, you can always review my earlier posts on this topic here and here.