The Reason Behind High Oil Prices

One of the things I think is very important to realize is that
the growth in the world oil consumption is not that strong." —David
Kelly, chief market strategist, J.P. Morgan Funds; The Washington Post, May 4, 2008
"...There is substantial evidence that the large amount of

speculation in the current market has significantly increased [oil]
prices." —U.S. Senate Staff Report, The Role of Market Speculation in Rising Oil and Gas Prices, June 27, 2006

On May 13, the price of a barrel of oil briefly hit a record of $126.98
on the New York Mercantile Exchange The reason was ostensibly that Iran
was cutting oil production. But there is no gas shortage. So why are
prices still going up?

In late April the American Association of Petroleum Geologists held
its annual invitation-only conference in Dallas for, as my source put
it, "the bigwigs" of the energy industry. During this meeting,
influential and knowledgeable CEOs reached the consensus that "oil
prices will likely soon drop dramatically and the long-term price
increases will be in natural gas." Of course, despite the pedigrees of
those in attendance, their forming a consensus on the direction of
energy prices does not mean that it's written in stone or is even going
to happen. The group is clearly bullish on natural gas. But petroleum
keeps getting more expensive.

The energy executives' prediction about the future price for crude
oil had sound backing. Just a few days earlier, Lehman Brothers (LEH)
investment bank had said that this current oil pricing boom was quickly
coming to an end. Michael Waldron, the bank's chief oil strategist, was
quoted in Britain's Daily Telegraph on Apr. 24 as saying:
"[Oil supply] is outpacing demand growth." Waldron added, "Inventories
have been building since the beginning of the year. The Saudi
Khursaniya field has just opened, with 500,000 barrels a day of
production, and the new Khurais field will start next year with a
further 1.2 million b/d [barrels a day]."