The greater the distance from port, the more countries the energy has to flow through before reaching markets — hence the greater the operational risk and, more importantly, the greater the price impact should something go wrong. That is because the impact of any hiccup is magnified by the tens of billions of dollars that have already been sunk into the transportation infrastructure.

Third, a greater proportion of global output nowadays comes from non-conventional sources of crude oil. Whereas in the 1960s one could pretty much guarantee access to plenty of light, sweet, high-quality, easy-to-access crude, today’s fields look remarkably different. They are smaller, deeper and filled with less pure heavy, sour oils. Sometimes they are offshore. Sometimes they are not even technically oil at all (think of Canada’s oil sands).

The technologies the energy industry is bringing to bear are impressive by any measure, but all of these new projects require a lot more capital and skill to develop than the fields of yesteryear. And as with the entrance of the former Soviet Union (with its transportation issues) into the market described above, this means that the magnitude of any given disruption is greatly magnified by the huge sums already sunk into the pre-sale production process (that now stand a chance of being wiped out in a flash). The market then responds with panic.

But the events of the past week have revealed a firm, but little known, fact about the commodity markets. Volatility means that prices can change rapidly. Volatility does not mean that this direction has to only be upwards.

Do the past few days represent a market top? Are cheaper prices in our future? It is certainly possible, but if Stratfor could produce reliable price forecasts we’d be based out of the Caymans rather than Austin, Texas. Based on historical trends past, suffice it to say that prices often plunge more dramatically than they spike.

Here are two brief examples. In 1990-1991 the world was convinced that the first Iraq war was going to be a bloody slog, and saw prices rise by 15 percent within 10 days. When it was revealed on the first day of the air war that it was going to be a veritable cake walk, prices plunged by a third within a day.

In 2001, after Sept. 11, the markets started to price in an American war with an oil producer and prices rose by 2 percent within two days. When it turned out that a global slowdown was more likely than a war with Saudi Arabia, prices dropped — again by about a third — within about a week.

The effects of rising price volatility are more significant than the persistence of rising prices because volatility cuts both ways. Expect more price rises, and falls, to come.

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