oil prices vary much more than supply and demand would dictate, due to the futures market.
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The soaring prince of oil due to the America-Iran war is a good time to become critical of the oil futures market, which is what controls the price of oil, and its derivatives, like gasoline and jet fuel, etc.
First, America has abundant oil for its own needs, even though for reasons that are somewhat dubious, its refining capacity doesn't match the type of oil it produces. Venezuela's oil type is much more compatible. Funny coincidence, that. Hmmm... But why should an "America First" United States pay as much for oil as Europe, China, India, etc. all countries that have to import oil from the Middle East. Granted, it's pretty unfair to them that we started a war that they have to pay for, in oil prices, if not lives (yet), but that's never stopped Trump.
Second, the futures market - any futures market - swing wildly beyond what prices would be if actual supply and demand controlled the oil price. Demand barely budges. Supply is, even if discounting the first problem above, but its not by 40%, which is about how much the futures market has changed in the last couple of weeks: from a barrel of oil priced in the mid 60s to over 100, if today's close is consistent with its opening (things are changing so fast, it could be more, unlikely to be less). The strait of Hormuz controls 20% of the world's oil, not 40%, and some of that oil might even find its way across Saudi Arabia by pipeline to the Red Sea, where there are alternative delivery methods.
In 2008, the oil price went below zero, so briefly it doesn't show even in this more detailed chart, but oil at $186/barrel does, just 7 months before: Click Here, manipulated by Goldman Sachs and others parking oil tankers offshore, to jack up the prices, then making a killing in the futures market. Oil prices did the same thing April 20, 2020, closing below MINUS $37: Click Here. It was very brief, but obviously, no one was being paid to take oil, even at the depth of the Covid lockdowns: Click Here.
The futures market is where traders can make a killing, exaggerating supply and demand and causing havoc way beyond what's happening in the real world.
It's time for a real pricing of oil based on real supply and demand. It would be a lot less volatile.
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