An Oil Bubble?

Politicians and commentators have been putting the rapid oil price rise of recent months down to supply limitation and increased demand from China, producing this from the Guardian two months ago:

Number 10 rejected the view that the huge oil price rise was due to speculation, saying that on the contrary the speculation was a function of signals by Opec, and the lack of balance between supply and demand.

and from the Telegraph :

Crude prices were pushed lower as the dollar strengthened and signs emerged that US fuel consumption is dropping. The debate on whether oil prices are likely to stay high permanently has heated up in recent weeks after the crude price broke the $135-a-barrel level for the first time.

Analysts at Goldman Sachs have forecast that the price could rise to $200 in coming years.

It's nice to know, then, that physicsists (especially econophysicists) have got a handle on the situation. Sornett et al reveal something different in an academic research paper lodged with the arXiv e-print archive a few days later, and discussed in the physics arXiv blog:

We present an analysis of oil prices in US$ and in other major currencies that diagnoses unsustainable faster-than-exponential behavior. This supports the hypothesis that the recent oil price run-up has been amplified by speculative behavior of the type found during a bubble-like expansion.

A rather striking graph is given which neatly predicts the recent sharp drop in oil prices. Not predicted by our own prime-ministerial economics expert, Gordan Brown.