Is the oil bubble about to pop?

Question

I just read that oil prices have declined two days in a row, due to the Saudis saying that they will increase production. They haven't started it yet, but just them saying it, the price began to drop. I can only imagine that it will fall of much quicker when they actually begin larger production.

I think this means that the bubble will finally burst because so much of the oil price is caused by heavy investment. People will begin to sell of the investments if they think the price is going to drop, which will mean that even more oil will become available, thus dropping the price further.

Am I crazy for thinking this? I find the topic interesting, but my knowledge of economics is limited.

Answer 1

Unfortunately, One of the main reasons for the increase in the price of oil, is the decrease in the value of the dollar.  Since oil is traded globally with the dollar, as the value of the dollar declines, so does the amount of oil that you can buy with it.  That is why to buy a full barrel now, it costs more dollars.  We can thank our fearless leader GW Bush and the war in Iraq which is draining our economy and causing the increased deficit and devalued dollar.