Minor Thoughts from me to you

Why is Oil So Expensive?

As I've mentioned in the past, I enjoy reading a few economics blogs. Lately, oil prices have been a hot topic -- why are they high?, are they too high?, are they too low?, are speculators driving up the price, etc. It's been a fascinating discussion.

Yesterday, Arnold Kling suggested that it's more likely that oil prices were too low last year than that oil prices are too high this year. In other words, we're not in an "oil bubble" created by evil speculators.

Early in 2007, the price of oil was $60 a barrel. Recently, it has been above $130 a barrel. Which of the following does Paul Krugman believe:

(a) market fundamentals justified $60 a barrel then, and they justify $130 a barrel now; or

(b) market fundamentals justified a much higher price in 2007?

I believe that (b) is more likely to be true, meaning that we had what Tyler Cowen calls an "anti-bubble" in oil.

(Via EconLog.)

I don't know if he's right or not, but I suspect he could be. I don't think demand has gone up that much between this year and last year. Maybe people are just now realizing how fundamentally the Indian and Chinese demand for energy is going to change the world?

This entry was tagged. Oil