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Tuesday, August 16, 2005

An Oil Bubble?

Will oil prices drop back down? Maybe - read about how the true price trend line of oil has been downward here at the Big Picture.
It would not be outrageous to call that price action bubble-like.

This certainly supports the argument that Gasoline/Oil prices are unsustainably high at present, and will eventually revert back to trend. However, as the prior two spikes make clear, the key is the word eventually. It typically takes about a half of a decade or longer for this mean price reversion to occur. With Oil prices still in an unptrend at present (i.e., no reversals indicated yet), this implies that $30 a barrel (real) oil may be a phenomenon no sooner than 2010. Work that data into your econometric models -- high oil persisting at least another few years -- and the 2006-2008 period is an even more pronounced recession than I have previously suggested.
Yes, the coming decline, according to Big Picture, may mean a serious recession. Yeah, but gas will be cheaper...

More on gas prices here.

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