It’s a fair bet that most of what you think you know about oil prices
is wrong. Despite the massive price fluctuations of the past decade,
the received wisdom on the subject has remained fundamentally unchanged
since the 1970s. When asked, most people – including politicians,
financial analysts and pundits – will respond with a tired litany of
reasons ranging from increased Chinese and Indian competition for
diminishing resources and tensions in the Middle East, to manipulation
by OPEC and exorbitant petrol taxes in the EU. Yet the facts belie these
explanations. For instance, what really happened in late 2008 when, in
just a few weeks, oil prices plummeted from $144 dollars to $37 dollars a
barrel? Did Chinese and Indian demand suddenly dry up? Did Middle East
conflicts magically resolve themselves? Did OPEC flood the market with
crude? In each case the answer is a definitive no – quite the opposite
in fact.

Industry expert Salvatore Carollo explains that the truth behind
today’s increasingly volatile oil market is that over the past two
decades oil prices have come untethered from all classical notions of
supply and demand and have transcended any country’s, consortium’s,
cartel’s, or corporate entity’s powers to control them. At play is a
subtler, more complex game than most analysts realise (or are unwilling
to admit to), a very dangerous game involving runaway financial
speculation, self-defeating government policymaking and a concerted
disinvestment in refinery capacity among the oil majors.

In “Understanding Oil Prices” Carollo identifies the key players in
this dangerous game, exploring their competing interests and
motivations, their moves and countermoves. Beginning with the1976 oil
embargo and moving through the 1986 Chernobyl incident, the
implementation of the US Clean Air Act Amendments of 1990, and the
precipitous expansion of the oil futures market since the turn of the
century, he traces the vast structural changes which have occurred
within the oil industry over the past four decades, identifying their
economic, social and geopolitical drivers, and analysing their fallout
in the global economy. He explores the oil industry’s decision to scale
down refining capacity in the face of increasing demand and the effects
of global shortages of petrol, diesel, jet fuel, fuel oil, chemical
feedstocks, lubricants and other essential finished products, and
describes how, beginning in the year 2000, the oil futures market
detached itself almost completely from the crude market, leading to the
assetization of oil, and the crippling impact reckless speculation in
oil futures has had on the global economy. Finally he proposes new, more
sophisticated models that economists and financial analysts can use to
make sense of today’s oil market, while offering industry leaders and
government policymakers prescriptions for stabilising the market to
ensure a relatively steady flow of affordable oil.

A concise, authoritative guide to understanding the complex, oft
misunderstood oil markets, “Understanding Oil Prices” is an important
resource for energy market participants, commodity traders and
investors, as well as business journalists and government policymakers
alike.

It’s a fair bet that most of what you think you know about oil prices is wrong. Despite the massive price fluctuations of the past decade, the received wisdom on the subject has remained fundamentally unchanged since the 1970s. When asked, most people – including politicians, financial analysts and pundits – will respond with a tired litany of reasons ranging from increased Chinese and Indian competition for diminishing resources and tensions in the Middle East, to manipulation by OPEC and exorbitant petrol taxes in the EU. Yet the facts belie these explanations. For instance, what really happened in late 2008 when, in just a few weeks, oil prices plummeted from $144 dollars to $37 dollars a barrel? Did Chinese and Indian demand suddenly dry up? Did Middle East conflicts magically resolve themselves? Did OPEC flood the market with crude? In each case the answer is a definitive no – quite the opposite in fact.

Industry expert Salvatore Carollo explains that the truth behind today’s increasingly volatile oil market is that over the past two decades oil prices have come untethered from all classical notions of supply and demand and have transcended any country’s, consortium’s, cartel’s, or corporate entity’s powers to control them. At play is a subtler, more complex game than most analysts realise (or are unwilling to admit to), a very dangerous game involving runaway financial speculation, self-defeating government policymaking and a concerted disinvestment in refinery capacity among the oil majors.

In “Understanding Oil Prices” Carollo identifies the key players in this dangerous game, exploring their competing interests and motivations, their moves and countermoves. Beginning with the1976 oil embargo and moving through the 1986 Chernobyl incident, the implementation of the US Clean Air Act Amendments of 1990, and the precipitous expansion of the oil futures market since the turn of the century, he traces the vast structural changes which have occurred within the oil industry over the past four decades, identifying their economic, social and geopolitical drivers, and analysing their fallout in the global economy. He explores the oil industry’s decision to scale down refining capacity in the face of increasing demand and the effects of global shortages of petrol, diesel, jet fuel, fuel oil, chemical feedstocks, lubricants and other essential finished products, and describes how, beginning in the year 2000, the oil futures market detached itself almost completely from the crude market, leading to the assetization of oil, and the crippling impact reckless speculation in oil futures has had on the global economy. Finally he proposes new, more sophisticated models that economists and financial analysts can use to make sense of today’s oil market, while offering industry leaders and government policymakers prescriptions for stabilising the market to ensure a relatively steady flow of affordable oil.

A concise, authoritative guide to understanding the complex, oft misunderstood oil markets, “Understanding Oil Prices” is an important resource for energy market participants, commodity traders and investors, as well as business journalists and government policymakers alike.