搀水的油价？Bears Smell Oil Bubble

The higher oil soars, the louder the cries of bears that it can't be justified.

Crude-oil prices hit an exchange record $89.47 a barrel yesterday in New York Mercantile Exchange trading -- gaining more than $10 in 10 days. Some contrarians are starting to declare these price levels unsustainable and even a 'bubble.'

Stephen Schork, energy trader and author of the Schork Report on oil and gas, called the rise merely a distraction on the way to a big correction. He says prices could fall to $65 to $68 a barrel.

Says fellow bear Tim Evans, an energy analyst with Citigroup Inc.: 'The bullish case has been at least two parts hype for each element of legitimate support.'

These skeptics claim prices are being driven not by the fundamentals of supply and demand, but by a blend of jitters and a flood of speculative cash.

Investors have poured into energy-futures contracts as they retreat from seemingly less-attractive bets in stocks, bonds and currencies, analysts say. Trading volumes are exploding on easier-to-use electronic oil-trading platforms.

Most bears see $45 to $65 a barrel as a more realistic price for oil. But even many of the most bearish bears say oil might not start to retreat until it first rises high enough to force a significant shift in demand -- for instance, by changing people's driving habits.

That price could be as high as $120 a barrel, according to Thomas Petrie, energy banker and Merrill Lynch & Co. vice chairman, speaking yesterday at the Houston conference of the Association for the Study of Peak Oil & Gas-USA, a group that contends oil production could peak between now and 2015.

The price of oil remains 12% below its inflation-adjusted record close of $101.70, hit in April 1980.

Of course, oil-futures prices reflect what's going on in the real physical market, and there are plenty of statistics that suggest rising demand and crimped supply will continue to keep prices high. Independent energy economist Philip Verleger argues there is no chance of prolonged lower energy prices 'absent a severe recession or depression.' He goes further, suggesting that oil prices early the next decade could top $200 a barrel.

Who's right? Here is the bears' argument that oil, which has risen 47% this year, is overvalued.

For starters, the market has been soaring on any hints that supplies could tighten, but failing to correct to the same degree if those same worries dissipate. Example: Prices have risen when supplies at the major oil-storage hub of Cushing, Okla., have dropped. But on some weeks that Cushing stockpiles have risen, oil hasn't fallen proportionately.

Rising tensions this week between Turkey and Iraq were the latest event to pump up fears about supply disruptions. But many oil-industry veterans say the cross-border showdown isn't that dramatic a threat to supply.

'All I've been hearing is there's no oil coming out of Iraq anyway,' says William Smith, president of money-management firm SAM Advisors LLC, pointing out that Iraqi oil output has already been crimped by wartime tensions for a long time. 'Now, all of a sudden, it's a problem?'

Bears disagree that supplies are failing to keep up with demand. Oil inventories have been generally draining in the U.S. and -- at least according to some estimates -- world-wide the past few months. However, stockpiles are still at what many consider historically comfortable levels.

U.S. crude stockpiles in the week ended Oct. 12 rose more than analysts' expectations, according to Department of Energy data released Wednesday. Citigroup's Mr. Evans points to recent production that is coming online from Angola and the Gulf of Mexico that could ease supply fears in the fourth quarter.

Of course, demand for oil in countries such as India and China is surging. However, oil consumption in Western developed countries has been flat at best. Bears say an economic slowdown in the U.S. would reduce overall demand and has the potential to knock more froth off of prices than many people realize.

Analysts at the Energy Department aided the bear camp this week by arguing that OPEC's decision last month to increase supplies by 500,000 barrels a day and lower seasonal demand in the U.S. will help nudge prices down closer to $70 a barrel. The department predicted in a report that 'the expected rebound in U.S. crude-oil inventories' will 'help to ease anxiety in the oil market' into the winter.

Speaking from the sidelines of the American Petroleum Institute's annual meeting in New Orleans Monday, when oil was trading around $86, Exxon Mobil Corp. Chief Executive Rex Tillerson said the high price was 'hard to explain.' He added: 'As far as I know, nobody is having trouble getting crude oil today.'

Another argument among bulls is that oil will keep rising as long as the dollar keeps weakening. That's because oil prices are denominated in dollars, requiring ever more greenbacks to buy the same barrel.

Mr. Evans of Citigroup says that logic goes only so far. Since Aug. 22, the dollar has weakened 4.5%, but crude oil has risen 29%. 'Let's not pin the crude-oil rally on the dollar,' he says.

Perhaps the bears' most strident argument that oil is at irrational levels has to do with what's being called the 'speculation premium.' Were investors such as pension funds and hedge funds not piling into the oil market -- mostly with a bullish bent -- oil would be a lot lower, they contend. Goldman Sachs Group Inc. commodities analyst Jeffrey Currie, a bull, says this might be adding $5 to $10 to the price of a barrel. Others put the number as high as $20.

The question, says Mr. Evans of Citigroup: 'What happens when it's time to take profits? How do all these people get out of these positions? And what does that do to the price?'

OPEC Secretary-General Abdalla Salem El-Badri is of a similar mind. OPEC 'believes that fundamentals are not supporting current high prices,' he said in a statement this week. Rising prices are 'largely being driven by market speculators.'

Meanwhile, oil 'shorts,' who are betting on oil's decline, are getting hammered. Mr. Smith of SAM Advisors says he's down 30% on oil bets this year. In August, when oil slid to $69, he briefly felt relief.

Despite losing even more now, he still thinks oil will crater and is adding to his short bet. He compares the oil market to 'the Nasdaq of 2000,' a reference to the tech-market bubble that burst.

Fellow bear Mr. Schork says, 'I absolutely do expect to see a correction. But I'm not telling my clients to sell this market, not in the least.'

Mr. Evans echoes that thought: 'I'm not foolish enough to step in front of a steamroller.'

Ann Davis / Neil King