There are a couple of basic economic factors at play here. That is why this is symbolic of the Internet Boom in the late 90s. What are those factors you might ask?
Let me tell you, then you can make your own judgment call.
1) There is excess supply in the near term. How do we know this?
* Increases in production have no impact on price; case in point the recent increases by OPEC (link)
* China and American usage is not rising at the predicted rates
- This is due to the increase in price and the implementation of other energy techs and higher efficiencies
2) Refineries are at or over capacity with the demand
* The world's consumption reached a point where it did not outstrip demand of raw product (Crude), but outstripped the available capacity to generate end product (gasoline, diesel, etc)
* Refineries have not tacked on a surcharge to take advantage of increased demand, they still take their same float, though the market would allow it, and governments may not.
* Increased capacity is a ways off, a refinery is a huge investment, and in the long run they may create capacity that is not needed because efficiencies and alternatives have dwindled demand . The last thing a refiner wants is to be producing at 50-60% capacity. That is a money loser. Hence the slow uptake in creating new capacity. (link)
3) New Rig Orders are still at a low (link)
* Typically the wildcatters will seek new reserves when oil prices are high. Look what happened in the late 70s and early 80s. Rig demand exceeded supply so contractors built one new rig after another. We don't have that happening right now. That is because the contractors don't expect this to last, and they don't want to invest the capital.
Looking into the crystal ball of Rig Orders, Refinery capacity vs. Supply I can't see anyway out but down. Once the hysteria blows over, the market bubble will burst. The question is not will it, but when? I can't honestly tell you. But I can tell you where there is going to be significant landscape changes.
1) Increased investment in alternative energy resources. Hybrid cars, GM is betting the bank on hydrogen, nuclear plant building initiatives, wind production, etc, etc. (link)
2) The middle east will get extraordinarily rich over the next 20 years. The higher prices, $30+ per barrel will add enormous amounts of capital to the already rich oil producing states. By the way, this includes Russia!
3) In some ways the US will be better off, less reliance on foreign fuels.
4) In some ways the US will be worse off, the enormous amounts of capital generated by oil producing states can be invested to take advantage of areas other than oil. Look at Dubai.
Think about it.
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