Each barrel of oil demand, either up or down, is supported by 90 barrels of some type of product, whether it is oil, gasoline or another, that supports that barrel in inventory, says Jonathan Linker, managing partner of The Energy Special Situation Fund LLC and Houston Energy Advisors.

"If demand goes up by a barrel you've got to have an additional 90 barrels available to support that in inventory. If demand goes down by a barrel, 90 barrels get liquidated," Linker told Houston Energy Finance Group and IPAA members in a recent joint program.

"Because, as a commodity, all oil and gas is sold on margin, those incremental thousand cubic feet of gas, or that incremental barrel of oil, sets the price for all gas and barrels of oil, although it will vary by region."

What is of interest is that supply and demand have basically stayed in balance, causing very small changes in supply and demand to result in very large changes in price, he said.

What has changed now in the energy business is market psychology, especially in demand for oil. Throughout the 1990s, demand was chasing excess supply. Now, supply is chasing increasing demand. In general, that situation causes more volatility, he said.

Certainly the same can be said for gas, he added. For example, in 2005, natural gas prices rose to $15 per thousand cubic feet, up from $4, in about two months. That situation reflected a market in which supply was chasing excess demand during winter months when gas was needed for home heating.

"Now we see a price trend of higher highs and higher lows during the past few years. What is important for the private-equity business is that the price trend has generally been up, which means if you do a bad deal, and don't overlever it, you don't have to sell it out quickly. You can count on the market to bail you out over time."

Linker also noted that recent commodity prices and new technologies have created new areas for investment and private equity has moved into those deals.

"We're seeing many greenfield E&P start-ups, which we never saw in the 1990s. However, these companies don't want private equity to invest directly in them. The E&Ps want to acquire a property so they can get private equity to back that field, as opposed to investing directly in the company.

"Also we're seeing $200- to $550-million funded start-ups, and these are international as well, which is a change from what we saw in the past. Private equity has also been backing some MLPs, but with the E&P companies themselves looking at them, that's probably a trend that's going to lessen."

The last five years have shown the greatest creation in value since the early 1970s, he added. "We've had pricing, we've had low interest rates, and we've had the incredible impact of technology in the business. That has just been the perfect storm for our business in the past five years."

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