Cafe of Broken Dreams by John scientific terrorist in action

Crude oil price is stable like never before

In last days when crude oil prices reached 150 USD and then have been falling down to the 40 USD would be probably very strange to talk about stability in crude oil market. But there is something you should know.

Brent monthly average price

To be specific many people are making a big mistake just because they’ve accepted money as a universal measure for value! This is certainly not true at all. Money does not have standardized value  like meters, miles or minutes!

Imagine If I had enough power and influence to force the world to trade crude oil for one of my Adidas T-shirt model. In the beginning crude oil price would be very high because supply of  these T-shirts would be very low. (thousands of barrels for one T-shirt) But If China noticed it and started to produce my T-shirt model, price would rapidly change direction. (one barrel for thousands T-shirts). All of this could happen with no change in supply and demand for crude oil.

Oil price in gold

The picture above shows price we could see today if Nixon hadn’t canceled convertibility of the USD to gold. No peaks, no bubbles and stability. It’s obvious why was price in last decade much more stable than in previous because markets has been developing much more quicker than never before  (open electronic markets, creation of ICE – Inter Continental Exchange) that means competition on the markets rapidly rose and that has been helping to push the price in the ideal point.

It’s bit amusing to see how politics are speaking about necessity to regulate these markets and restrict speculation even if this speculation significantly do help. There is only one sick medium in crude oil market it’s the USD (which is completely government regulated) especially then its infinite production. Because making new dollars is much easier than making new gold bricks.