The Oil Nonbubble

By PAUL KRUGMAN

"The Oil Bubble: Set to Burst?" That was the headline of an October 2004 article in National Review, which argued that oil prices, then $50 a barrel, would soon collapse.

Ten months later, oil was selling for $70 a barrel. "It's a huge bubble," declared Steve Forbes, the publisher, who warned that the coming crash in oil prices would make the popping of the technology bubble "look like a picnic."

All through oil's five-year price surge, which has taken it from $25 a barrel to last week's close above $125, there have been many voices declaring that it's all a bubble, unsupported by the fundamentals of supply and demand.

So here are two questions: Are speculators mainly, or even largely, responsible for high oil prices? And if they aren't, why have so many commentators insisted, year after year, that there's an oil bubble?

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