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More about why oil ran up to a high last summer;

"PRAGUE, April 20, 2006 (RFE/RL) -- RFE/RL spoke with Leo Drollas, the deputy director and chief economist of London's Center for Global Energy Studies.

RFE/RL: The price of oil continues to climb to record highs. Analysts say fears over the Iranian nuclear crisis is one of only several issues driving up prices. Iranian President Mahmud Ahmadinejad only strengthened those fears on April 19, when he said oil prices are still below their true levels. What's your take?

Leo Drollas: The first thing we must say is that these high prices are really paper prices, in a sense for paper oil, they're not the prompt market -- that is, for real wet barrels, as we call them. So they're obviously driven a lot by news and by sentiment, and they refer to oil that is bought and sold months ahead through paper contracts. And these prices move quite quickly on news, and the news is bad at the moment for oil because of the Iranian standoff, because of problems continuing in Nigeria, and many other factors in the market.

RFE/RL: So you're saying that, beyond fears over Iran or supply disruptions in Nigeria, the futures market is driving up prices?

Drollas: There's a lot of money that has come into the oil market over the last few years. The money that is now tracking commodity indices has increased from about $8 billion in 2001 to about $70 billion today. So we've got a huge influx of money into commodity-tracking indices, and a large part of those indices of course refer to oil. So we've got a lot of speculative money or hedge-fund money or other kinds of investors coming into oil, thinking they're on a roll now and that oil prices will forever increase. And in a sense, this tends to fulfill the prophecy, as long as the money keeps coming in.

RFE/RL: How does that drive prices, exactly?

Drollas: What tends to happen is that the futures prices, especially for months further out, tend to rise, and they create a difference between future prices for outer months and spot prices for oil, especially for "wet" barrels. And this differential encourages people to buy physical oil, and therefore, the pressure from the futures market is transmitted to the actual spot market for oil."

See how that increase in the delivered wet barrel ends up costing me and Joe Schwartz more at the pump.

"RFE/RL: But isn't capacity part of the problem as well, both in terms of the actual supply of oil and the fact that, particularly in the United States, refining capacity is down, with some refining facilities still not fully recovered from last summer's Hurricane Katrina?

Drollas: Well, this is the huge, unanswerable question as to what component of this price run-up is due to speculation, as we call it, or due to real fundamental factors. My own gut feeling is that maybe $15 [per barrel] or so at the moment is due to these kind of pressures from the futures market, from speculation if you like. In other words, the price should have been quite a bit lower than that, because there isn't actually a physical shortage of oil at this very moment."