Stephen Schork, editor The Schork Report, says the jump in oil prices was a classic market bubble, and that fair value for crude stands now at about $80 per barrel.
After reaching $147 in July, crude quickly plunged back to $66. OPEC is moving on production cuts, desperate to establish a floor.
Market psychology pushed oil to that absurd high, Schork told Moneynews.com.
“The market is driven as much by emotion and psychology as by macroeconomic supply and demand,” he says.
“On the way up, we had a buying frenzy. It started with speculative traders and investment bankers and then grew to include non-traditional commodity investors such as college endowment funds and union pension funds.”
These investors bought into the idea that oil could easily reach $150 or higher.
“In retrospect, we know that never made sense,” Schork says.
“OPEC and a number of large oil companies told me in the summer of 2007 that even $75 oil couldn’t last. Oil was a bubble and it burst.”
And the carnage may continue, Schork points out. “Markets can go to crazy numbers on the way up and the way down.”
Some oil experts see a lot more downside ahead.
“There's negative economic news coming from everywhere,” Phil Flynn, senior trader at Alaron Trading, told Bloomberg News.
News that manufacturing is contracting at its fastest pace in 26 years “doesn't bode well for future oil demand,” Flynn notes.
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