Fark (of all places) linked up this business report on how speculative money has entered the oil market, driving up prices perhaps as much as $10 per barrel more than demand would otherwise cause. Some analysts are thinking $50 per barrel is not out of the question this year. Right now it's very, very good to be an oil producer. What I think everyone has forgotten is that when this bubble bursts, it's going to be very bad to be an oil producer.
The whole reason OPEC got its act together in the late 90s was because uncontrolled production had glutted the market and nearly gutted the economies of oil producing states. The idea was to keep oil prices in a "sustainable" $25-$28 per barrel range, enough to make money but not enough to force corpulent westerners to sell their gas-guzzling SUVs.
Well, something certainly went wrong. People involved in oil production, which includes the governments in states like Texas and Alaska, are making money hand-over-fist at the moment, but nobody expects these prices to last forever. Collapsing oil prices forcing sheiks into the street may sound appealing, but it's more complicated than that. When it snaps, and it will, it won't just blanch the Saudi economy, it'll probably pop the wheels off Russia's as well. The difference is, of course, the Russians still have nukes.
OPEC seems to have forgotten the lesson it was taught in the late 70s and early 80s: the US may piss and moan about high oil prices, but if they stay high enough long enough we will change our consumption habits, and that will have a profound, very long term effect on oil prices. Western economies can survive high, even very high, oil prices because they're rich and very diversified. It's a lot harder for oil producing nations to survive low, especially very low, oil prices, because that's all they've got.
You see, with this much money sloshing (as it were) around, there are very heavy pressures for increasing production capacity at any cost. Oil companies and oil producers have for the past ten years been pretty good at balancing production and refinery increases with price goals, but with prices this high it'll be very hard not to let it all get out of control. Building "pipeline-and-truck" capacity is slower and less flexible than the lunatic swings a commodity market can take. Like office space, there's a very real risk of a production glut as capacity oversteps demand.
The last long-term sag in prices nearly skewered the entire Middle East and a big chunk of South America. The prices are much higher, and have been that way much longer, this time around. If the oil market crashes to scale, it will be very, very bad for our "friends" with the turbans. The only real problem is it'll be very bad for a whole bunch of other people we don't necessarily want to be put out on the streets.
A lot of politicians will get blamed for the bad stuff that happens, and a lot of other ones (perhaps the same ones, depending on who wins the next election) will take credit for all the good stuff that happens, but the bottom line is oil is a market-driven commodity. Conventional wisdom and foil-hat conspiracies notwithstanding, governments have very little control over the market price of oil*. You can throw rocks at Bush now and then flowers at him (or Kerry) later, but as with Clinton a decade ago they'll just happen to be the ones standing at the station as the train goes by. The engine is bigger than any of them and is driven by forces nobody completely understands, let alone controls.
Buckle your seatbelts folks... it's going to get a lot bumpier soon.
* That's market price of crude oil, not the pump price of fuel. Pump prices are quite heavily influenced by governments, because fuel is one of the most productive commodities to tax. In the US, something like 40% of what you ultimately pay for fuel ends up in some beauracrat's coffer. In Europe it's much worse. But governments all over the world went on spending binges in the '90s, and nobody's going to cut those taxes just to help something as abstract as a taxpayer.