First, we should examine the phenomena that govern the life cycle of the economic bubble-its start, growth and eventual collapse. There is no consensus on what causes a bubble. Further, one view is that a bubble can only be identified after it has manifested itself in all of its stages. It is not clear-cut since even now after the collapse of oil prices there are still questions as to whether there was an oil economic bubble. (Did we have a housing bubble?).


...Last week's article demonstrated that because of the absolute elasticity of the supply of paper-oil on the futures market, this market on its own, without reference to the economic fundamentals of the physical-oil market, cannot support a bubble. Therefore, the evidence, if any exists, has to be sought in the physical market.

In order for speculators to influence the trend price of physical-oil, futures and index investors have to continue to buy large quantities of physical-oil and hold these quantities off-market. There is no evidence that this occurred and if it did it would have to be immense quantities to manipulate a worldwide physical market as large as the present crude oil market.

Yet because of Peak Oil a bubble in oil prices could be established. Oil inventories were not excessive and any increase that there was can be explained away by the fact that oil use, particularly in China and India, also increased, impacting positively on the associated inventories.