Beyond Comprehension

Exxon Mobil CEO Rex Tillerson blamed a third of the recent run up in oil prices on the weak dollar, another third on geopolitical uncertainty, and the rest on market speculation.

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Geopolitical uncertainties may relates to unrest in Nigeria's oil fields, the possibility of war between the U.S. and Iran, and the antics of Venezuela's Hugo Chavez threatened to disrupt oil supplies.

hmm but then again geopolitical uncertainties maybe due to concern over future energy security.

Another knock on the head point of view is coming from the chief of the Organization of Petroleum Exporting Countries (OPEC) Chakib Khelil who said"What's happening in the oil market is due to the mismanagement of the U.S. economy." Continuing U.S. trade and fiscal deficits along with lower interest rates are stoking inflationary fears.

Tim Evans, an energy futures analyst at Citigroup's Futures Perspective concluded that "the futures and options market has become more important than the physical supplies in driving the price,".

Investors are treating oil as a hedge against inflation and a falling dollar. Oil markets are part of a negative positive feedback loop in which higher oil prices contribute to higher inflation, which in turn lowers the value of the dollar, which boosts oil prices, and so forth. In other words, the oil market is coming to resemble the gold market (which has also been soaring).

Higher prices also encourage innovation. Economist Richard Rahn from the Institute for Global Economic Growth believes battery technologies are improving so rapidly that the majority of cars sold in 10 years will be all-electric. This would certainly help drive down the price of oil.

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Inelasticity of demand and supply means that prices can fall as steeply has they rose. So what will happen to oil prices over the next few years? No one is predicting $10 per barrel oil. However, , Evans believe that the price of crude will settle at around $60 to $70 per barrel in the next couple of years after the bubble bursts.