Exactly why is crude over 100 dollars a barrel?

One word: Speculators.

Located at a key intersection in the North American pipeline system, Cushing is home to the largest oil storage facility in the United States. Oil traded on the New York Mercantile Exchange literally changes owners here in Cushing. If the tanks are full, prices sink. But if levels in these tanks fall, prices rise. A rule of thumb for traders: Supply and demand control the market.

Normally, at any rate. But in recent months the conventional wisdom has flip-flopped. Within a year the price of a barrel of crude has doubled, from $50 to last week's high of $100. Nothing seems impossible now. Some analysts see prices rising to between $120 and $150, which would have dramatic consequences for the world economy.

Similarly spectacular price developments have only occurred four times in the last few decades: in 1973, when the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo for the first time; in 1979, as a consequence of the Iranian revolution; a year later, when Iraq invaded Iran; and in 1990, when Iraq invaded Kuwait.

Which leads to one the most provocative questions being asked about the world economy today: Why are oil prices soaring again?

It's All Speculation

There are plenty of answers. Some hold the crisis in the Middle East and constantly growing demand in China responsible. Others blame producing countries for keeping the oil spigot half-closed But none of it's very convincing. "Supply and demand cannot explain the high prices," says Fadel Gheit of Oppenheimer & Co., a leading commodities analyst. Like many in his profession, Gheit believes financial investors are driving up prices. He's reminded of the Internet bubble around the turn of the millennium. According to Gheit, oil is also seeing "excessive speculation" at the moment.

OPEC arrives at the same conclusion. "The fundamentals are right," says OPEC President Mohammed al-Hamli. In fact, the cartel has expected excess supply on markets since early February -- a result of the American economic crisis.

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Once upon a time, all that counted in the oil business was production volume and consumption in the industrialized nations. Those days are gone. Oil is now part of every well-structured portfolio -- as was the case, until recently, with those abstract securities meant to enable the investor to secure a slice of the American real-estate boom.

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Gheit has been in the business for 30 years. He worked at Mobil Oil and JP Morgan before moving to Oppenheimer. He remembers oil prices of $9 a barrel. In the hearings before the US Congress, he served as a star witness of sorts, attesting to the madness of the speculators. "The traders use every excuse in the book to drive up prices," he says, "it's pure hysteria." On some mornings, when he arrives at his office in Manhattan, London traders have driven up prices by $4 a barrel overnight, perhaps because a pipeline burst somewhere in the world. "I have a degree in engineering," says Gheit. "This isn't heart surgery. It's a plumber's job, child's play." The damaged pipeline was probably repaired even before Gheit found out about it -- but after the traders made their profits.

The question is, how long can these galloping prices continue without doing permanent damage to the US and world economies? Rising prices for gasoline, heating oil and airline tickets will increase inflationary pressures and stifle demand in the short to medium term.

"In the end it's a straw that breaks the camel's back," says Gheit, a native Egyptian. Or it's like a weightlifter hefting weights, he says, until someone places a pencil on top and he crashes to the ground.

"This is a bubble," he insists, "and it will burst."

I guess most corporations realize the Bush era is finally coming to an end, accountability will come back in fashion, restraint and oversight will be written into law, and they are trying to wring out of the consumers the last penny they can before it all comes crashing down.