There are times when it is hard to understand the mysterious ways of markets, unless you see the players as hyper-reactive children with a short memory and little capacity for careful thought responding to the latest piece of gratification or denial.
The obvious example is the stock market. Wall Street last week reacted to the news of positive United States third-quarter growth by rising 2 per cent, blithely ignoring all the clearly obvious caveats that growth was boosted by the 'cash for clunkers' incentives and it is proving to be a jobless recovery. Surely enough, the next day, US data showed a dip in consumer spending in September and Wall Street duly dived.
Oil prices moved similarly, rising above US$80 a barrel on prospects of a return to real growth, only to shed US$2.50 a barrel when the poor news of consumer spending hit home.
But, in the case of oil, there are reasons for real worry that prices may again go sharply higher than are warranted by global economic growth and the balance of supply and demand, because oil prices are vulnerable to a multiple whammy effect: extreme market nervousness; pricing in a weak and weakening US dollar; the increasing role of speculative traders; the emergence of oil as a - more useful - store of value and speculative play alongside gold; and the failure of world leaders to get to grips with substantial issues of global use of energy.
Arguments have raged in academic and political circles about what exactly caused oil prices to soar so rapidly last year, from US$92 a barrel in January to a record high of US$147 on July 11, before collapsing dramatically and equally quickly to below US$40 in December.
One theory is based on the 'peak oil' claim advanced by M. King Hubbard that the world is running out of oil. The problem with this is that Hubbard claimed in the early 1970s that oil output would peak in the mid-1980s and then fall to 35 million barrels a day by 2000. But world oil output was 75 million barrels a day in 2000 and climbed to more than 86 million barrels last year.