Is Oil's Rise Sustainable?

Oil's powerful ascent to $67/barrel has been downright awe-inspiring.  And while still not at an inflation-adjusted all-time high, it's definitely starting to get up there.  So, is the price of oil akin to a bubbly, overbought tech-stock, or is this a sustainable move?  The answer maybe sorta both.  Barry Ritholtz discusses this question, and offers this chart from the new york times:

Let's look at this technically: This chart is of a very long downtrend. There was a minor spike in the 1930s, which eventually reverted back to trend. There was a major spike in the 1970's; It subsequently collapsed in price some 50%, from $3 / gal to $1.50, over the 1980 to '84 timeframe. It would not be outrageous to call that price action bubble-like.

This certainly supports the argument that Gasoline/Oil prices are unsustainably high at present, and will eventually revert back to trend. However, as the prior two spikes make clear, the key is the word eventually. It typically takes about a half of a decade or longer for this mean price reversion to occur. With Oil prices still in an unptrend at present (i.e., no reversals indicated yet), this implies that $30 a barrel (real) oil may be a phenomenon no sooner than 2010. Work that data into your econometric models -- high oil persisting at least another few years -- and the 2006-2008 period is an even more pronounced recession than I have previously suggested.

Yeah, work that into your models.

Comments

[Fred]

The long downtrend is consistent with the peak oil theory. From the peak (whenever that is), this graph will continue as a mirror image with generally rising prices.

[yiwu agent]

g downtrend is consistent with the peak oil theory. From the peak (whenever that is), this graph will continue as a mirror image with generally ris

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[Douglas]

This certainly supports the argument that Gasoline/Oil prices are unsustainably high at present, and will eventually revert back to trend.