News

The great oil bubble has burst: soon it will be at $70 a barrel

Actually the price of a barrel of crude has been falling: from a peak of $145 in early July, it came down to $117 and was trading yesterday at $120.

That’s almost a 20pc drop in little more than three weeks.

If the trend continues into September at anything like the same rate of descent, most of the inflationary spike of the past 12 months will miraculously have been sliced away. This is a dramatic reversal, and it is worth trying to work out why it is happening and what it means.

Just possibly, it means that what investors refer to in shorthand as the great “oil up” story has finally revealed itself not as the fundamental reflection of scarce supply that its adherents liked to claim, but as a simple, speculative bubble that was always going to burst.

But for the time being a return to a relatively “normal” oil price in the $60 to $80 range would take the sting out of the current inflationary surge, and that in turn would allow the Bank of England to contemplate cutting interest rates to stave off recession and help the housing market.

Keep your fingers crossed, and keep your eye on how oil traders react to titbits of bad news.