Oil Prices Reflect Uncertain Supply and Certain Demand

An editorial by Washington Post editorial by Robert J. Samuelson argues that there is no speculative bubble for oil, only speculation about a significant shortage in the supply in the near future.  As future prices for oil barrels rise and exceed spot prices, there is an incentive for companies to build up inventory and sell their barrels at a higher price at a latter date.  This could lead to a process that feeds on itself with no reference to the fundamentals underlying the global oil market.  Yet given current threats to oil production around the world, it appears more like prudence for investors to prepare for disruption to supplies by bidding up prices and in the process encouraging companies to build up oil reserves in the likelihood that supply takes a hit while demand remains high.

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