What if I told you that the reason why oil and commodities are high is because there is a positive re-enforcing feedback loop going on? I have been saying that it is the speculators. But what if something bigger is going on?

What if what we have is a twist on The Power of Nightmares (Video)? The documentary focused on the idea that two dissimilar, but opposite forces both get what they want without actually talking to each other. In other words you get a feedback loop that helps feed the fire on each side.

The reason I thought about this is because of a recent discussion I had with my brother. My brother has lived for the past 4 years in Russia and has worked throughout the former Soviet Union during that time. He speaks fluent Russian, he lives about 350 KM southwest of Moscow, has a Russian girlfriend and likes Russia. I am building the context that my brother is local.

Yesterday I gave him a call for a specific reason and I decided to ask him how the oil crisis is hitting Russia. He told me that gas has never been cheap to start off with. In his area he told me that the litre of gas costs about 28 Rubles. That translates into 4.42 cents per gallon of gasoline. You folks who are sitting in the US are probably saying hey that is what we are paying. Yes, but remember this is Russia where most people don’t earn very much money.

I asked him how people cope with this? He replied they use natural gas in their cars. It’s about 25% of the cost of gas. Curious I asked how people heat their homes, after all heating oil must be quite be expensive. His response was that they use coal. In Russia coal is a cheap medium to heat your home, and there is plenty of supply. In his opinion they did not export coal because it was not worth the money and CO2 “unfriendly”.

Then it hit me, what if this is a twist on The Power of Nightmares plot? Because today on CNBC I heard a trader talk about how there is not enough coal in the world and that countries like India and China are consuming more than there is. Sound familiar?  The panic of coal…

Yet my brother who is in Russia says that there is plenty of coal and not worth the export. What if the traders started talking and saying, “oh oh oh the sky is falling not enough coal and not enough coal but lots of demand…” That would work to the benefit of countries like Russia and make it worthwhile to export coal at a premium.

What I am talking about is a collusion of forces where a rumour is propagated without the complete truth. Would it be to the benefit of commodity producers to suppress the nightmare scenario?

To be able to propagate a nightmare it would imply control of the supply. With oil we have that situation since NOBODY knows the exact supplies. Add the fact that in the last several years the dictators of this planet have taken control of all the oil fields and you have the perfect storm. After all Chavez has oodles of communist programs to support. What I find especially telling is that Dubai is opening an oil futures market.

The Dubai Gold & Commodities Exchange will launch trading of crude-oil futures on Tuesday, a timely move given the astronomical prices for oil and talk of U.S. regulation of speculators in the commodity markets

Now that is convenient…  As the speculators are getting scrutiny another exchange opens up.

Assuming that this is the scenario, who are the winners? Oil producers, and speculators. Who are the loosers? Big oil, and anybody who has to buy and sell the oil or the commodities.

So is this a Power of Nightmare situation? I say yes. And people like Boone Pickens are not helping the situation! He says “sky is falling, sky is falling…” Will this nightmare ever stop? Good question…

Let’s say that I am right and this is a power of nightmare scenario, what does this mean for the price of oil and commodities? I am going to be bold and make a prediction oil will not reach 150! Oil might reach 140, but it will drop back. I am making this bold prediction because 150 would ensure mutual destruction of the two actors and nobody wants that!