Mike Norman, anchor, HardAssetsInvestor.com (Norman): Well, what is the outlook for oil prices? Here to talk with us is Stephen Schork, editor of The Schork Report. Hello everybody; I’m Mike Norman. Stephen, welcome back to the program. It’s good to have you here.

Let’s talk a little bit about what’s going on. I filled up my gas tank recently … almost $3, about $2.80 a gallon here in New York City. From what I read anyway, we are awash in gasoline. Something doesn’t make sense. Give us a little bit of an overview now of the market. Is the pricing for crude and products correct in your view, given the amount of the supply that’s out there?

Stephen Schork, editor of The Schork Report (Schork): Well, it’s almost a case of déjà vu all over again. If you recall this time last year, we were in the midst of a historic bubble which got oil on to the cusp of $150. At the end of June of this year, we went on another significant run, but we were in a mini-bubble, a bubble that took us to up to $75. We’re now in the process of correcting from that bubble, so therefore no, the price of oil, the price of gas is not reflective of the true underlying fundamentals. We’re still in the position of exercising this irrational exuberance, if you will, out of the market.

Norman: So a mini-bubble. It was mini, but no mini; I mean, was it a bubble in the same sense as the one last year, that it was driven by investors and speculators?

Schork: It was driven on a lot of hope, exactly; a situation where not underlying supply-demand cost jobbers. For instance, if you look at product today, gasoline in mid-July is at an eight-year high. Diesel supplies are at the highest levels since Reagan’s second inaugural address in 1985. Therefore it wasn’t the underlying supply situation … we have a lot of oil. It’s not the underlying demand situation … we don’t have a lot of demand.

Effectively what happened is that we manufactured a rally – the boys on the floor of the New York Stock Exchange and their brethren over on the New York Mercantile Exchange.

Norman: The stock exchange? You’re blaming stocks?

Schork: Well, I’m blaming stocks we went on. If you went and listened to the rhetoric back in February, the economic situation was dire. No one believed in it, but you know what? A couple guys just wanted to start buying, and because the economic situation was so dire, their buying was met with a little resistance, so they created a snowball, and the guys on the commodity markets jumped ahead of them.

And now we’ve got a situation where it wasn’t supply-demand driving up oil prices, it was the expectations of higher prices, because every time I bought, prices went higher, so therefore it was a bubble, because higher prices were becoming the justification for even higher prices.

Norman: Yet there are still those – if you listen to the debate going on, and it is still raging – who would say that speculation adds nothing to the price of oil. Yet we sit here, as you said, with almost decade-highs in terms of supply, in terms of inventory, gasoline and diesel fuel, and yet prices are really not down, in your view, as much as they should be.

How can people still say that speculation is not … or investment; I don’t care what you want to call it: investment, speculation. Look, demand has two elements to it, right? It has real physical demand – we need the gas to put in our car; and it has demand coming from investors or speculators.

Schork: To sit there and suggest that the speculators are not having an upward bias on this market is simply coo-coo-for-Cocoa-Puffs kind of talk. We are still in a very deep recession, but what’s happened is that we’ve seen a material rise in oil prices. The price of crude oil has more than doubled; the price of gasoline has jumped by about 50-60%.

That doesn’t happen in a recession. We have to appreciate that in a recession, when you come out of the recession and demand returns, that demand pushes prices up. What we’re doing right now is pulling prices up on the expectation that economic demand – once we come out of the recession – will catch up to those prices.