Its safe to say the oil bubble has burst.  Oil has managed to erase $19 since topping out at $147 per barrel.  Without the impact of geopolitical events, its now our position that oil has topped and will be descending back to the $110 level where support exists.

Though very few investors are willing to call a burst, many are drawing back on their always bullish viewpoints.  After shorters took control of the market in June, representing more barrels of oil than long positions, the oil market has turned from “how high can we go” to “where is the bottom.”

In everyone’s interest should be Iran and the upcoming Olympic games.  Though past years have been peaceful, there is still much to worry about demonstrations in China and the prospect for trouble in an event that has been plagued with politics.  Not to mention the borders heating up in the Middle East and Bush’s go-ahead to Israel to fire back on Iran in case of a strike.  Now that the Middle East is entangled in what the future may see as the second Cold War, there are plenty of tensions that could send oil back to $147 a barrel or even more.

The drop in oil prices also means that the overall market will be less likely to be slave to a barrel of oil.  The market has been controlled by oil but as oil drops its probable that the price will stop making headlines.  Oil at $120 a barrel sounds a lot better than $147 a barrel, even an upward movement here would have little effect on the market.

The factor in future oil prices will probably be the subprime disaster.  Fannie and Freddie’s solvency issues will be closely tied to oil prices going out for the next couple months.  If the pair come back as insolvent, oil prices will likely drop on fears of the economy.  If a bailout is in order, inflationary concerns will send oil higher on an even lower US dollar.

So for now I believe it safe to say that the oil market has bubbled and popped.  Future movement upward will be the result of geopolitical and economic news events.  Hold on tight, the next week could bring prices to the sub-$120 level.