To top it off, I'm sorta getting my hat handed to me over at Krugman's blog. (I hope it is only incidental. I'd be floored if my scattered musings here somehow made it to Paul's purview).
But, as Hillary has taught us recently, I think I'll just soldier on and pretend that I'm not losing, mathematically. But the truth is that Paul is right and just not clear, while I'm wrong and clear in a different way. (In my scorecard, that's a loss, but I'm not going to say it aloud).
At least I was (unintentionally) funny along they way, right? "Hubbard's Peak"? As in Old Mother Hubbard? Professor Hubbert might not be as amused by my free-wheeling ... substitutions.
It may not matter because the world opinion is already for government involvement to "solve" the problem, and "the problem" is perceived to be peak oil. The windfall profits tax is back in the news and the FTC has new authority to check up on market manipulation (not that we should expect small government conservatives to do more than make a show of it).
PAUL'S RIGHT
The truth is that commodities markets cannot "take flight", so much, because they are ultimately linked to physical quantities. As best I know, physical settlement is required in the exchange traded markets worldwide (and cash hedges - "EFPs" - have to be perfect). Speculators and hedgers of over-the-counter products can bid futures prices up and down, but probably do not have the storage capacity for anything more than short-term physical speculation (for which most probably hold no desire).
I WAS RIGHT ABOUT "BUBBLE", IN A DIFFERENT SENSE
There is probably no good definition of a bubble, except that prices seem abnormally high, because they subsequently dropped.
We could say we are in a bubble, because the price of oil is far above its production cost. Rationally, that shouldn't happen, especially since demand is fairly predictable.
I suppose the industry leaders would want to use the terms "cycle of boom-bust", rather than "bubble-and-prick". I'm not unsympathetic.
FURTHER CONSIDERATIONS
One thing I do NOT believe is that we are near "peak oil" (a supply concept). I also don't think we've reached near peak demand for oil. I abide by my prognostication that there is a lot of play left in this game, on both "S" and "D" and that today's price will not hold, one way or the other.
Update: Two things.
Technically, it's possible that speculation could raise the volatility in futures prices to influence a bottomline cost. I doubt this would approach the levels needed to account for the size of the observed "bubble" in retail prices of product, however.
It is possible that high prices have the counter-intuitive affect of shuttering supply, especially at uncompetitive, older refineries. Independent refiners, particularly, could be forced to go bust. They might just get acquired, of course, producing a net change of zero, unless no one wants to buy their technology.
Basically, this pendulum could swing the other way. (see WaPo this week, speculating that Big Oil isn't interested in taking back what they disgorged - that would suggest ... problems).
