NEW YORK (MarketWatch) -- Human beings are a predictable bunch and we tend to wait until things get to a painful crisis mode before taking drastic action.

My question is why does it always have to get to that point?

Take the most recent run-up of oil prices, when crude hit $147 a barrel and gasoline was trading around $5.

As prices reached nosebleed levels, the general public was in a great deal of pain and they acted accordingly. There was an outcry for more alternatives, more refineries, conservation, infrastructure investment etc. Everything from clean-coal technology to nuclear was on the table.

Fast forward to today, with crude prices at around $38 and gas back below $2, and it's a very different picture. No pain means no gain in solving the problem.

Let me be clear, though. That problem hasn't gone anywhere.

$300 crude not far off

While the global recession and credit crunch have severely impacted global demand for energy, it's only temporary. The problems propelling oil prices to $147 haven't gone away. The patient is, at best, in temporary remission.

Traders are seasick from the oil markets lately; the volatility has been so extreme. Aside from the obvious macro-factors, what else is driving the abnormally large swings in crude oil?

It's called "contango." Contango occurs when futures prices are higher than current prices. The scenarios are not uncommon, but the recent spread widths are extreme by any measure.

For example: the April 2009 crude oil contract is around $38.10 -- while the April 2010 crude contract, crude for delivery a year from now, is trading at $50.26. That's a $12.16 spread.

That means major oil companies like Royal Dutch Shell RDS.A, -1.68% , Exxon Mobil XOM, -2.91% and BP BP, -2.80% can store oil on tankers and then sell the April 2010 contract at $50.26.

Even factoring in the cost of storage, they come out better selling forward than selling at current market prices. This maneuvering causes additional volatility throughout the oil curve, as physical oil companies position themselves in the futures markets to take advantage.

Contract rolls

Another strategy we see consistently in the energy market is contract rolls at major hedge funds, commodity-trading advisers and exchange-traded funds. One ETF is the U.S. Oil Fund LP USO, -3.45% , the world's largest oil fund, said to account for 22% of the outstanding front-month contracts each month.

When the front-month contract approaches expiration, this gigantic ETF must sell its position in the expiring month and buy it back for the coming month.

Also, long-term trends following CTAs and hedge funds have been short on the front months. When a contract expiration approaches, the fund has to roll its short position into the next month's contract, since most CTAs and hedge funds have neither the ability nor the interest to take physical delivery of oil.

The volatility in energy is due to the gigantic tug of war going on around key days of the month where funds, ETFs and oil companies are adjusting for the roll.

Old problems are new again

So what were the major factors that drove oil to record levels the last two years? There are many.

Global demand is among the biggest. Pent-up demand is exploding in growth areas like China and India. Once that global manufacturing engine begins firing again, you can count on energy prices ramping up. Here in the U.S., demand is down dramatically, but as the economy recovers, it will pick up swiftly.

Any economic recovery results in higher energy prices -- it's elementary. That means $300 crude oil could be one year away or three years away, but certainly not much more.

There's been almost no progress on the march to alternatives. The global investment engine has ground to a halt. With oil prices at these levels and the market in tatters, the last place investors want to put their money is in the alternative energy space.

Every sector from uranium miners and clean-coal technology to bio-fuels and oil drillers has seen investment and share prices dry up. The call for building of new refineries and pipelines has all but gone silent.

But OPEC has cut production across the board. We already are seeing supplies start to taper off. Eventually, demand will catch up with supply and we'll be right back in the same boat we were in a year ago.

The realities are chilling. The largest oil field in Mexico Cantarell is still in major decline and when it does run out civil unrest in that nation could explode. These types of chokepoints, both political and physical, still exist with several major oil exporting nations.

Adult do-over

You know when you made a mistake as a kid you'd want a "do-over"? If only managing a portfolio were so easy.

In a way, though, it can be. With oil prices and commodity prices retreating, we have opportunities to take advantage of pricing we thought we'd never see again. Many of the solid energy, refining, drilling and exploration companies that performed exceptionally during the last surge in prices likely will do well again.

Also, several of the more established alternative energy plays should rebound along with crude oil, and they're at just a fraction of their year-ago levels. Investors need to be wary of volatility. But it's prudent to have some exposure.

Shares of many key oil stocks took a plunge, and now they're offering some great entry points. A few ways to play the coming rally in oil is to simply buy the December 2009 crude oil call options. If you prefer to play the equity side, Exxon Mobil is a good bet for the majors while Halliburton HAL, -5.40% is one for the drilling side. Many others are attractive.

It's disappointing that during this lull in energy prices, more immediate action isn't being taken to stave off the rapid return of even higher energy prices. But as investors, we need to take action and responsibility to hedge our own portfolios.

High energy prices will be back soon for those that don't prepare. So will the pain, unfortunately.

Kevin Kerr has been trading commodities since 1989. He currently manages the Cane Garden Capital institutional agricultural fund and edits the Global Commodities Alert at www.kerralert.com