No commodity has affected the global economy more than crude oil. No commodity has a more direct impact on every world citizen. No commodity exerts more influence on the world financial system’s function and stability than oil. Given the importance of oil to the world economy, one would think the process that determines oil prices would be well understood.
One would clearly expect officials of all of the world’s major energy economies to be fully conversant in market processes. One also expects competition authorities, especially the U.S. Federal Trade Commission, to have a strong working knowledge of market process. One also expects investment banks, which put at risk large amounts of capital trading crude oil, to be able to forecast the price crude oil in a systematic way. Sadly, none of these expectations are close to being fulfilled.
We believe that crude oil prices are close to being launched and would take a semi-parabolic trajectory up to next year, in 2012. But in order for this hypothesis to be realized, there needs to be a structural underpinning of oil prices going forward — a trend that is defined mainly by the interaction of market players (users and suppliers of crude oil) influenced in a large part by the perceived future scarcity of crude oil supplies relative to future demand. That is what we intend to show in this report.