The only way speculation can have a persistent effect on oil prices, then, is if it leads to physical hoarding – an increase in private inventories of black gunk. This actually happened in the late 1970s, when the effects of disrupted Iranian supply were amplified by widespread panic stockpiling.
But it hasn’t happened this time: all through the period of the alleged bubble, inventories have remained at more or less normal levels.
I’ve never been one to push the bubble hypothesis to explain the high price of oil but I find this an unusual argument to make against bubbles. Isn’t it easy enough to argue that the relevant hoarding is of oil in the ground rather than oil in strategic reserves or panic stockpiles? We have lots of state-owned oil companies and maybe their way of speculating is simply to remain sluggish in their exploration and extraction activities, at least for the time being.
I think of a bubble as a market price which is above the fundamental value of the asset, largely for psychological reasons. But with a commodity like oil the fundamental value of the asset depends on the marginal unit and thus how much oil is supplied. Fundamental value, at least at the margin, adjusts to the price and in that sense the bubble hypothesis can seem tautologically false if we apply the traditional definition of a bubble.
The key question, in my view, is how much more the oil-producing nations could bring to the market if a) their state-owned oil companies were not incompetent, and b) they did not tolerate this incompetence as an implicit form of speculation and collusion. I will not offer an estimate here (I genuinely don’t have one) but b) does leave some room for bubbly-like phenomena, whether or not stockpiles of pumped oil are high. Note that in b) collusion and speculation work together and a) tosses incompetence into the mix. The whole foul brew is probably easier to sustain in times of rising demand and thus oil price explanations are not going to be very simple, or easily separable, by the nature of the problem.