I can not agree with you in 100% regarding some thoughts, but you have got a good point of view. Thanks for your thoughts.

1) The price that gets reported in the papers is WTI or Brent, sweet light crude, but the vast majority of crudes out there are neither light nor sweet. Heavy crudes require complicated refineries to be transformed into gas, diesel, kerosene–the profitable products. (Sometimes, as with some Venezuelan crudes, the refinery needs to be specifically retooled in order to handle the crude, becoming basically a that crude only refinery.)

There are not too many refineries in the world that can handle heavy crudes, which sell at a large discount from WTI, in fact you might say there’s a shortage. This is one reason that Iran is sending their heavy crude production into storage in tankers in the Persian Gulf. However, there are many complicated refineries coming online between 2008-2012, a partial sample would be Jamnagar, Jubail, Yanbu, Sosan, and Fujian (Exxon/Saudi Aramco/CNPC refinery expansion in Fusou, if I remember correctly) which alone would account for additional capacity of over 2 million b/d. That’s 2 million that can handle complicated crudes. If demand slows enough, that should put the market back in balance–for a time.

2) Crzyeye is right … refiners are under a lot of political pressure just now and appear to be reluctant to pass costs on to consumers. Witness the pretty prominent API ads all over pointing out that ownership of oil companies is pretty broad, deep, and diverse. Even though folks poo poo the notion, oil companies are well aware of the dangers of nationalization and have basically the worst public image possible for someone to remain in polite society.

But over 25%–likely much more, but this is what I added up from big consumers–of worldwide demand is directly subsidized. The two countries with the largest demand growth–China and India–both regulate prices to reduce the burden on consumers. All governments are getting nervous about the situation and remember that over 70% of world oil reserves now held by national oil companies that will not let market forces prevail if it is politically inconvenient to do so under all conditions.

3) The high price environment will drive investment in alternative technologies, etc., but the time line on that is quite long, and the number of Americans who are seeing whatever disposable capital they had left completely disappear is going to be high. Bad news for the economy generally and ultimately for the oil producers. The number of pedestrian-friendly, mass-transit equipped, cities west of the Mississippi can be counted on one hand. It is almost insurmountably difficult to reorganize them efficiently.

Populations in the big producing countries feel even more entitled to cheap energy than we do in America–which is part of the reason, for example, that Iran is facing a gasoline shortage–and many of the big producers are also big consumers (for example, Saudi Arabia consumes well over 1 mb/d), don’t expect any let up in demand from that particular demographic.

Given that subsidized energy kind of acts like a universal micro loan and that nearly all emerging nations have them, they will likely subsidize as much as possible until their currencies come under pressure deemed dangerous. Kind of like a game of chicken.

Not to mention unscrupulous economists…

I mean, be a litle realistic here. Breaking swings down into percentages or comparing to other commodities are both invalid approaches to the oil market- this is not a commodity where production prices and availablity have wild swings. Weather less than hurricane intensity just doesn’t affect this commodity much – even major changes in winter heating or summer cooling hit oil prices far less than a drought or bumper crop affect animal or vegetables.

Break open the records for who is buying oil futures, how many are buying, and how much is getting resold to other “investors”. That is where speculation would be seen, if it is there.

There is no “free” market for oil, and it doesn’t take a conspiracy for a bunch of independent actors to create a bubble.