Oil Bubble

Crude oil may reach a record $130 a barrel this year because pension funds are investing more in commodities, said Pierre Andurand, the chief investment officer of BlueGold Capital Management LLP, a hedge fund. (Gee - I wonder if his fund is heavily invested in oil, which would make his opinion entirely self-serving. They shouldn't allow hedge fund managers to opine on the market.) The outlook for oil over the next five years is also bullish as producers find it hard to replenish reserves and demand outpaces supply. Oil companies are finding it tougher to replace their findings and are drilling for harder-to-reach deposits while energy demand and crude prices surge to records.

With commodities prices surging to all-time highs, Calpers, the largest US pension fund, said it plans to boost investments. "There's a lot of index funds flowing into oil, and the world is under-invested in commodities, especially pension funds,'' said Andurand. "Oil is now a medium-to- long-term outlook story, and it's bullish in terms of fundamentals of production constraints. Next year, oil may rise even further to $150 a barrel,'' said Andurand, whose $300 million fund has so far invested 70% in energy (BIG SURPRISE!) and 30% in agriculture and metals since February.

Translation: There are a bunch of upset people who have missed out on the spectacular run up in oil prices. Oil is a limited resource, so how can the value come down when everyone wants more? When they start buying oil, the price will go higher forever and ever.

Replace "oil" with "real estate" and you've got 2006, or "internet" or "telecom" and you've got 1999, or "tulip" and you've got the 17th century. The more things change, they more they stay the same.