US crude closes in bear market territory, settling at $60.67, down 21% from 52-week high
The oil markets and other commodities markets have been subject to wild speculation over the past decade. The problem began after the Reagan bull stock market took a fall with the tech crash of the late 1990s. Many young traders and investors had never had to think much about investing, they leveraged what they could an placed it on tech and let it ride. They were badly burned in the crash. They spent the next decade trying to find the high flying returns they were used to. They found them initially in real estate which went bust in 2007-08 and then in commodities, especially oil.
With bonds, stocks, and real estate in a more rational territory, the only place left to speculate for huge returns is commodities. When a commodity like oil shows a mere hint of growth, the oil bull pile in driving up the market price to stratospheric levels. This is a bubble, not inflation, so the bubble only lasts until a significant number of the speculators come to their senses and begin selling. This causes the bull market in the commodity, this time oil, to falter and weaken. It usually does not take long before more and more speculators try to take their gains by selling, the result is a rapidly deflating bubble which destroys a huge amount of assets.
Much of this is driven by the easy money pumped out by the Federal Reserve Bank over the past many decades. The losses, however, are real.
Based on the current world economy, oil prices should be in the $30 to $40 range, not the $100+ range that the speculators convinced themselves was reasonable. The fall will create a huge number of losers, and if rational, the oil bulls will change their ways and move into more productive investments. This is the third oil bubble since Bush fils was President, so I am not holding my breath.
Guys, get it together, you are killing yourselves.