Oil Bubble About to Pop?

The flood of speculative investment into oil markets is inflating a price bubble that could pop and send crude prices sharply lower if U.S. petroleum demand continues to slump, analysts warned yesterday.

Crude prices continued their remarkable rally yesterday, rising 95 cents (U.S.) to close at another record high of $105.47 on the New York Mercantile Exchange.

But the boom could be setting the stage for its own undoing, many analysts argue, since it is being fuelled by speculators looking to hedge against a declining U.S. dollar and devalued financial assets. Some analysts are forecasting a sharp correction in the price of crude this spring.

“It’s hard to argue that prices should be higher [now] than they were not too long ago,” said Michael Lynch, president of Strategic Energy and Economic Research Inc., of Cambridge, Mass., who has forecast that crude markets are set for a massive correction that could eventually bring prices as low as $50 a barrel.