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A single ‘prophecy’ was able to drive the oil price (per barrel of sweet crude) up $10.75US on the New York Mercantile Exchange.
An analyst from Morgan Stanley did ‘predict’ that the crude oil price could reach $150 by 4th of July. Before it would take a real event to drive the prices up, like a corroded pipe in Alaska, or an unrest in Nigeria. Now, a ‘prophecy’ is enough.
Both sides of the market, on the supply and demand side, are about equally matched. Neither a hypothetical new country the size of China is going to start consuming oil tomorrow, nor the current oil production is going to suddenly and rapidly decrease.
If a prediction is able to drive oil pricing, it shows the disconnection between the mercantile market and the real world.
Somehow, the parallels with the electricity crisis in California, are striking. In the mid 1990s California de-regulated the electricity market, sold its power plants, and was buying electricity on the market pricing.
For couple of years the things were fine. Then, power plants started to close, or started having planned and unplanned maintenances. Rogue energy traders artificially reduced the available electricity.
With the things on the edge, risking to turn off the electricity to neighborhoods or cities, California had to pay 5/10/20 times the market rates for electricity.
It took electing a new governor with a ’star’ power - Arnold Schwarzenegger- to bring a message to Washington, and solve the electricity crisis.
So, how do we solve the oil crisis?
The bad news is that Washington, can not help much here - it is a global crisis.
The good news is that most of the countries of the world are aware the issues involving producing and consuming oil, and together we are really interested in solving this problem.