The present "failure" of the markets, as it has been called by some, is indeed evidenced by the enormous disconnect between the operating costs and profits of the major commodities suppliers and finishers.  However, this is not a generic failure of the market system, as it is directly attributable to governmental over-intervention and unsound currency.

As it is, the markets, as well as the flow of money, are distorted NOT by the 

malfeasance of “big oil” but by Federal policy.

In particular, the lowering of interest rates, thus triggering the dollar’s 

depreciation, combined with the government’s assumption of credit risks, have 

undermined the ability of the markets to function rationally and unimpeded.

Thus, I think the more likely explanation for crude pricing is a combination 

of a few things:

1)  Market expectation of limitation and a misperception of tight supply (as 

evidenced and reinforced by journalistic reporting and commentary)

2)  The Fed's current policy of inflation evaluation ignores food and 

energy...the two most impactful points of price change for the economy.  

Therefore, gov’t policy ignores the "tax" of inflation imposed on day-to-day 

dollar users (consumers).

Now, as it is, lower interest rates translate into higher asset prices; as 

can be seen by the abandonment of the dollar and upward movement of oil and 

other commodity prices.  In my opinion, this negatively distorts other 

markets (particularly commodities and labor) and demands a general shift of 

assets toward a different “bubble”. 

3) In the face of a depreciating dollar, the exodus from housing and 

construction investment, and residual aversion to tech investment, large 

investors and institutions are turning toward the basket of commodities.  

Currently, this is oil, gold, copper, wheat, etc.

4) The governmental insurance of lenders against the risks that are inherent 

to the nature of lending  has artificially altered the costs of such 

business, and led to an oversupply of credit, i.e., the student loan market.

Thus, otherwise irrational behavior is rationalized by the government's 

Policy; by consequence of altering the moral hazards, the costs of secondary 

education and housing are therefore driven higher, as there exists too much 

“easy” credit and little or no incentive to save.

In a proper market economy, the best made decisions will apportion 

resources to their most valuable uses.  Market pricing therefore plays a 

critical role in that process; by signaling that the relative scarcity of 

goods is real or imminent, the urgency of ending waste is made evident.

But, as things are now, the combination of risk limitation and the 

aforementioned assumptions, have conspired to unbalance and predicate the

market with falsity.

The Federal government should therefore: 

1. Include energy and food prices in its inflation calculations 

2. Not lower the interest rate in times of commodity price increases 

3. Not insure lenders against the risks that are inherent to the nature of 

lending and thus avoid artificially altering the costs of such business.