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Paul Kedrosky triggered an outbreak of comments on his Infectious Greed blog with his assertion that oil has out-bubbbled tech in terms of both duration and percentage gain.

He backed up his assertion with a chart (see below) from Bespoke Investment Group comparing the bubbles in housing and technology sector with the run-up in oil.
Kedrosky, who says he is becoming “crazy bearish” on oil prices, argues that while oil prices are unlikely to “tumble materially” tomorrow, they will, of necessity, decline:

I don’t buy the argument that oil is a special case. Yes, oil supply is finite and yes, demand is growing, and yes, energy is the core of our modern life, but oil is also a classic complex system: Small demand perturbations, given the market’s current criticality could have massive implications for price. Oil is special, but it’s not that special.

A recent report from Factset Research takes a similarly dim view of oil and energy stocks:

Unquestionably, there is a bubble in oil company profits, although masked by what look like low PERs. EPS have risen 8.7 times over since 1994, and this is another record. The sector’s share prices have risen ‘only’ 512% over the same period, but are extremely vulnerable to a change in the economic situation.

Technically speaking, the energy sector could outperform further in the months ahead, but the correction could be brutal, as is the case with cyclicals. We recommend neutrality on the sector, and sales in line with bad news on the economy.

Unsurprisingly, not everyone is convinced. Pimco’s Bob Greer, for instance, has dismissed the bubble idea:
A speculative bubble requires constraints on supply, such as we have seen in real estate markets, and for prices to lose track of the intrinsic value of the asset, as happened in the tech boom…However, commodity business is conducted via futures where there is no constraint on supply and the cash market plays a vital role in anchoring prices for physical commodity assets with the futures market.

The IMF has also argued that oil’s run is a classic supply and demand scenario, “propelled by positive and rising global net demand - consumption minus production - against the backdrop of already-low inventory levels in some markets,” although it concedes there may have been an “overshooting of prices.”

How high can oil prices go? Goldman Sachs says $200 a barrel in the next six to 24 months is not out of the question…