are bubbles not to be expected as a part of normally functioning markets?

anyways, we're probably getting too far into semantics here. had markets not priced in decoupling to the extent it did, oil would likely not have reached the 148 or whatever level it reached.

one thing i def think towards your argument though is:

a) the cost of storing oil (can't easily have it laying around)
b) the relative scarcity of it and cost of extraction around certain critical points (used to be you could extract it at the margin for $30, now with the oil sands and deeper sea extraction, costs upwards of $45-$60/brl)

so large changes in expected demand can have huge impacts on the price of the commodity.

Barron

My main argument is that the spot market is not a discounting mechanism - you can't borrow oil from the future, thus except to the extent that inventory levels can fluctuate, changes have little to do with future expectations. That demand destruction occurred does not mean the price was wrong, except the futures curve. And had the futures curve been "right," wouldn't we have run a much lower inventory level and be looking at a completely different picture?

It's also not clear that what's transpired is the only thing that could've happened - would we be looking at the same oil price, had Lehman been rescued, for instance? Relative to previous levels of volatility, the US stock market fell by more than oil, right? Was the US stock market in a bubble in August? If Apple lowers the price of iphones by 40%, was the iphone market prior to this price cut in a bubble?

Given that this is a Peter Schiff thread, I'll say this - it appears to me that most people cannot mentally handle large price swings like this and most companies cannot operate well in environments of extremely high price volatility. Should the government run a larger strategic reserve and use it more liberally to maintain a degree of price stability? Obviously this s the stated goal of OPEC, but they either lacked the political will or spare reserves. This is almost certainly the correct way to implement agricultural subsidies for instance, if they are necessary. As I mentioned before, the private sector runs into problems for common goods like this since paying for insurance (larger reserves, prudent capital ratios, lower leverage etc) essentially reduces volatility and helps out those who are not paying for it. Therefore, the balance is always struck at a point that allows for large systematic failures. There's some moral hazard, which means the target should be wide and not explicit and you should let some companies fail anyway, but it's much easier to clean up the aftermath, if you have the reserves than if you don't.