Crude rose 697 per cent since trading at $17.45 a barrel on the New York Mercantile Exchange in November 2001, and reached 28 record highs this year.
The last time a similar pattern was seen in equities was eight years ago, when Internet-related stocks sent the Nasdaq Composite Index up 640 per cent to its highest level ever, according to data compiled by Bloomberg and Bespoke Investment Group LLC.
The Nasdaq tumbled 78 per cent from its March 2000 peak, erasing about $6 trillion of market value, as investors concluded that prices weren't supported by profits at companies such as Broadcom Corp. and Amazon.com Inc Billionaire investor George Soros and Stephen Schork, president of Schork Group Inc, say oil is ready to tumble because prices aren't justified by supply and demand.
"There's nothing different between this mania, the dot-com mania, the real estate mania, the Dow Jones mania of the 1920s, the South Sea bubble and the Dutch tulip-bulb mania," said Schork, whose Villanova, Pennsylvania-based firm advises the Organization of Petroleum Exporting Countries (OPEC), Wall Street firms and oil companies on the outlook for energy prices. "History repeats itself over and over and over again."
China, India
Oil climbed on growing demand from China and India, whose economies expanded the past seven years at an average annual pace of 10.2 per cent and 7.3 per cent, respectively.
Supply disruptions in Nigeria and Iraq and declining production in Russia also boosted prices. Investors added about $250 billion to commodity index trading strategies since 2003, according to Mike Masters, president and founder of Masters Capital Management, a St Croix-based hedge fund.
Crude futures fell 1.4 per cent to settle at $134.86 a barrel in New York today. The Nasdaq added 2.1 per cent to 2,454.50 on oil's decline and a government report on consumer prices that matched economists' forecast.
Money is flowing into oil as the global economy slows. The worst US housing slump since the 1930s and more than $390 billion of writedowns and credit losses at banks will slow global growth to 2.7 per cent this year from 3.7 per cent in 2007, according to the World Bank.
Investor demand
The US economy's expansion may slow to 1.3 per cent this year from 2.2 per cent in 2007, dragging down oil demand by 240,000 barrels a day, according to economists surveyed by Bloomberg and Energy Department data.
In China, the second- biggest fuel consumer after the US, economic growth may fall to 10.1 per cent from 11.9 per cent, the Bloomberg survey shows. "I don't know if you can classify it as a bubble or not," said Masters.
"But there is no question that investor demand is having an effect on price. Very little of it has to do with physical supply and demand of crude oil." Masters testified at a Senate hearing in May on the role of speculators in commodities markets.
Gains in oil are the result of a "bubble" caused by speculation from index funds and a tight balance between supply and demand, Soros said in testimony before the Senate Committee on Commerce, Science and Transportation on June 3.
"The bubble is superimposed on an upward trend in oil prices that has a strong foundation in reality," he said.
