Myth-makers caught short in oil speculation

By R M Cutler

BRUSSELS - As in military science there is the danger of "fighting the last war", so in economic science there is the danger of puncturing the last bubble. This is especially hazardous when what one has is not, in fact, a bubble. Then, the myths of such a bubble are what need puncturing. So it is today with oil prices, which this week hit a record US$139.89 a barrel.

Is demand actually decreasing in India and China? No, demand is still rising; it is the rate of increase of demand that is declining, and also not by much. Or, perhaps, is oil a hedge against dollar weakness? "The dollar," said Canadian Finance Minister Jim Flaherty at the Group of Eight (G-8)meeting of his colleagues last weekend in Osaka, "is a market currency." And "one does not interfere with a market currency".