Why Oil ETF Speculation Proves We’re Forever Blowing Bubbles#

Winter, 1637. A single Semper Augustus tulip bulb changed hands in Haarlem for 6,000 guilders — enough to buy a grand canal house in Amsterdam. By spring, that same bulb was worth less than a common onion. Fast forward to the summer of 1720: shares in the South Sea Company were trading at ten times their value from just six months earlier. By Christmas, they’d cratered, dragging down the fortunes of half the English aristocracy — including Sir Isaac Newton, who supposedly muttered that he could “calculate the motions of heavenly bodies, but not the madness of people.” In March 2000, the Nasdaq Composite crested above 5,000, lifted by companies that had never earned a single dollar of profit. Eighteen months later, it had shed 78 per cent of its value.

And in July 2008, crude oil touched $145 a barrel — then collapsed to $32 by December.

The specifics shift. The underlying condition doesn’t. What links a Dutch flower auction, an English joint-stock company, a Californian dot-com, and a barrel of West Texas Intermediate isn’t the commodity itself — it’s the process. A process that Robert Shiller, the Yale economist and future Nobel laureate, spent an entire career trying to pin down with clinical precision.

The Definition That Changes Everything#

Shiller’s definition of a speculative bubble is disarmingly simple: a situation in which temporarily high prices are sustained mainly by investors’ enthusiasm rather than by consistent estimates of real value.

Read that sentence again. The operative word is “enthusiasm.” Not analysis. Not calculation. Not some carefully reasoned assessment of supply-and-demand fundamentals — enthusiasm. The kind of gut-level emotional charge that makes otherwise rational people pay six thousand guilders for a flower bulb, or $145 for a commodity that cost $25 just four years earlier.

But Shiller pushed the idea further. He described speculative bubbles as “naturally occurring Ponzi schemes.” In a classic Ponzi scheme, early investors get paid with capital from later investors — not from any real economic activity. The machine runs as long as fresh money keeps pouring in; the instant it stops, the whole thing implodes. Shiller’s insight was that market bubbles operate on the exact same principle, except no single con artist is pulling the strings. The con, if that’s even the right word, is collective and unconscious. Each new buyer pushes the price up, which makes earlier buyers look smart, which pulls in more new buyers, which drives the price higher still. The positive feedback loop needs no central planner. It organizes itself.

This isn’t metaphor. It’s mechanism.

The Genetic Code#

What makes Shiller’s framework so valuable — and so unsettling for anyone who’d prefer to believe that markets are efficient — is what it implies: bubbles aren’t freak accidents. They’re recurring events with a recognizable DNA, a genetic code that expresses itself across centuries, asset classes, and cultures. The same sequence plays out again and again: a plausible story emerges to justify rising prices; the story attracts capital; capital pushes prices higher; higher prices seem to prove the story right; confirmation draws in even more capital. The loop feeds on itself until it runs out of new believers — and then it reverses with the same self-reinforcing brutality.

Think of the components as a diagnostic checklist:

First, enthusiasm-driven pricing. Is the price climbing mainly because more people want to buy, or because the underlying asset has genuinely become more valuable? In the oil market of 2007–2008, global demand was growing at roughly 1 to 2 per cent a year — perfectly in line with historical norms. Yet the price doubled in twelve months. That gap — between the pace of demand growth and the pace of price growth — is the fingerprint of enthusiasm, not fundamentals.

Second, the Ponzi structure. Does the current buyer’s profit hinge on finding a future buyer willing to pay even more? In a commodity futures market awash with index fund money — hundreds of billions of dollars rolling mechanically from one contract to the next, never taking delivery of a single physical barrel — the answer is an unequivocal yes. The index fund buyer isn’t buying oil. The index fund buyer is buying the expectation that someone else will pay more for the same contract next month. Peel away the financial engineering and the Nobel Prize–winning portfolio theory, and what you find underneath is a structure that Charles Ponzi himself would have recognized on sight.

Third, narrative contagion. Is there a widely shared story that makes the buying feel rational? In the oil market, the story was almost too good to resist: Peak Oil, the China supercycle, the permanent structural deficit in global supply. Every cable-news segment, every investment-bank research note, every dinner-party conversation hammered the same message — oil can only go up. The narrative didn’t just describe reality; it manufactured demand. People bought oil futures not because they needed oil, but because they’d absorbed a story about scarcity that made buying feel prudent, even inevitable.

Three positive results. Three out of three. The genetic code is fully expressed.

The Chronic Condition#

There’s a temptation, when studying historical bubbles, to treat them as one-off aberrations — moments when markets “went crazy” before snapping back to sanity. Shiller resisted that temptation throughout his career. His argument was subtler and far more disturbing: bubbles aren’t departures from normal market behavior. They’re a feature of it. Markets populated by human beings — creatures prone to herd behavior, confirmation bias, recency bias, and the overpowering urge to believe that this time is different — will generate bubbles as reliably as a river will flood its banks in spring.

History confirms it. Tulipomania in the 1630s. The South Sea Bubble in 1720. Railway mania in the 1840s. The Florida land boom of the 1920s. The conglomerate boom of the 1960s. The Japanese asset bubble of the 1980s. The dot-com mania of the 1990s. And then, in the first decade of the twenty-first century, two simultaneous bubbles — one in housing, one in oil — that between them nearly brought the global financial system to its knees.

The intervals between bubbles vary. The host assets change. The narratives are always new. But the underlying mechanism — the positive feedback loop connecting price, enthusiasm, and capital — never changes. It is the chronic condition of financial markets: periodically dormant, never cured.

The Diagnostic Gap#

Shiller’s framework is superb at answering one question: is this a bubble? It offers clear, testable criteria — enthusiasm-driven pricing, Ponzi structure, narrative contagion — that can be applied to any asset class in any era. What it doesn’t do is tell you where you stand in the bubble’s lifecycle. Is the bubble still young, with years of inflation ahead? Is it nearing its peak? Has the peak already come and gone? Shiller can tell you the patient is sick. He can’t tell you whether the fever is climbing or breaking.

For that, we need a different diagnostic tool — one that maps the bubble’s progression through identifiable stages, each with its own symptoms, its own internal logic, its own characteristic behaviors. We need, in other words, Hyman Minsky.

But before we turn to Minsky’s five-stage model, it’s worth pausing to notice how snugly the oil price bubble of 2003–2008 fits Shiller’s criteria. The enthusiasm was real — you could hear it in the breathless predictions of $200, $300, even $500 oil. The Ponzi structure was real — billions of dollars in index fund money cycling through futures markets with no intention of ever touching a physical barrel. The narrative contagion was real — Peak Oil dominated public conversation with the certainty of religious prophecy.

As of this writing, in the spring of 2026, retail investors are once again piling into oil ETFs at volumes that have triggered automatic bubble warnings from the very analysts who missed the last one — a pattern Reuters flagged as eerily reminiscent of pre-crash speculative surges. Meanwhile, speculative funds that only weeks ago rode crude positions with manic, meme-stock energy have begun a sharp exodus, dumping net-long positions at a pace Bloomberg described as a textbook sentiment reversal following the UAE’s departure from OPEC. The host has changed. The genetic code hasn’t.

We are, as the old music-hall song put it, forever blowing bubbles.