The Oil Bubble is Bursting

Or at least deflating at a good clip:

Nymex September West Texas Intermediate sank $2.99 to a session low of $122.50 a barrel on Friday, down 5 per cent this week.

ICE September Brent lost $3.05 to a session low of $123.39 a barrel on Friday, off 5.9 per cent this week. Hurricane Dolly caused minimal disruption to production in the Gulf of Mexico and the ending of that threat contributed to selling pressure this week.

The correction for oil prices has lasted two weeks with Brent down 16.3 per cent since hitting a record $147.50 on July 11 while WTI has sunk 16.8 per cent since reaching an all-time high of $147.27 on the same day.

“We would still see any price below $120 as representing a fairly strong buy signal,” said analysts at Barclays Capital. “Crude oil stocks remain low globally while the projected path of incremental demand and supply suggests virtually no inventory build over the course of the current quarter.”

I wrote earlier that this was indeed a bubble as much as the housing market was and once it reached an unsustainable point it would retreat. We may be at the point, which will have very good side-effects. First, the dollar will strengthen, domestic spending in all industries will increase and inflation will lessen.

I guess the next question is just how much more would oil prices have decreased if Congress took real action on drilling as the GOP has proposed? If Speaker Pelosi and Senator Reid were not so quick to shelve these crucial bills until after the August break, we might be seeing the oil bubble really pop and prices declining below $100 per barrel. When that happens, the oil market will be a bear market and retail gas will fall by $0.50 or more per gallon in a couple of weeks time.

This is a sure-fire loser for Congressional Democrats as the nation has clearly spoken out and said that domestic production is a paramount issue. Congressional "Blue Dogs" could be on shaky ground come November because the libs led by Pelosi can't find it in themselves to go against the vocal "green" base even though it's political suicide. Once again, Democrats have handed the GOP an issue with which to beat them in a year when Republicans are looking into the political abyss. We are now seeing Majority Leader Reid attempt to take a scalpel to a cornerstone of capitalism by targeting speculators while simultaneously ignoring the wishes of the American people including his own constituents. I'd pay close attention to the push within Reid's state for exploiting the oil that is suspected to be there as a threat to him from that angle would make him take notice damn quickly.

Update: If Reid thinks taxes are "voluntary," perhaps hoping he understands the nuances of oil production increases is a hopeless cause.