July 24, 2008 | posted by Michael Baxter in Oil |

Bubble watching is a difficult game. The Crash of 1929 was preceded by a number of phases of panic sell offs, followed by recoveries. Even the run up to the dotcom bust saw a number of sharp sell offs, followed by even sharper recoveries. But the continuous fall in the price of oil is just beginning to smell like something more promising than that.

It fell another 3 1/2 dollars a barrel yesterday. It is now $21 down from the all-time high reached in early June, or, to put it another way, it has fallen 14 per cent.

And, right on cue, yesterday also saw the first report from a respected analyst predicting sharp falls in the price of the black stuff for some time.

Ed Morse, chief economist at Lehman Brothers reckons oil is nearing a tipping point and will fall to $90 within a year.

Meanwhile, others are calling the end of speculation. Speculators, of course, have been at the receiving end of US politicians’ wrath in recent weeks, but this morning, the Telegraph reported Rob Laughlin, senior energy broker for MF Global as saying “We’ve seen the exiting of some of the speculative fund money re-entering equity markets.”

When oil does finally begin its descent into the sub $100 region, there will of course be two sides to the story. There will be the story of falling demand, and there has been plenty of evidence of that in recent weeks, and there will be the story of rising supply.

And this morning the pink ‘n’ revealed the other side of the coin. It reported on the latest findings of US scientists who reckon they have managed to show the Arctic could hold as much as $90bn worth of undiscovered oil and natural gas, equivalent to the known reserves of Russia.

It went on to talk about the race to exploit the Arctic, with the US, Russia, Canada, Denmark and Norway all hoping to get their share of the pie.

This could of course lead to all kinds of tensions – especially, one assumes, between the US and Russia. It is strange because, right now, the Arctic doesn’t really belong to anyone. If one was to be truly objective about this, then really there is no reason why it shouldn’t stay that way. Instead, the Arctic should perhaps be seen as the world’s resource. It does, after all, serve the world pretty well via its storage of water in the polar ice caps. It won’t happen, of course. But it is fun to dream, even if its just for a few seconds.

As regular readers will know, for some time now this column has been arguing that oil is too expensive, and will fall back to $70 within a couple of years. But the speed with which the current falls are occurring is surprising.

They say bubbles burst when just about everyone is talking about jumping on the bandwagon. And that has simply not happened. Mind you, the economic news has been pretty diabolical of late, so maybe we don’t need to look far for evidence that the price of oil is really hurting, and therefore inevitably leading to cutbacks. The speed with which the economic downturn is occurring has caught everyone by surprise; maybe oil can slide in price just as fast.