Why Speculators Are Driving Up the Price of Oil

Oil is rising in price partly because world demand is growing faster than supply, especially with growing demand from China. But speculators are also being blamed.

There is a reason why speculators are bidding up the price of oil, and there is another reason why oil prices are rising.

There is anticipation among many informed people that there will be a war in the Persian Gulf soon. The most likely scenario is that Israel will attack Iran's nuclear weapon facilities after the American election but before a new president takes office. It may be after the new president takes office if McCain is elected. Iran is expected to retaliate not only against Israel but the West in general by trying to attack Persian Gulf shipping and possibly the oil facilities of neighboring nations. The United States will try to defend the flow of oil from those attacks.

Speculators are betting that oil will be disrupted and are buying futures now in the hope of selling later at a higher price. The bidding up of oil futures also causes today's prices to rise.

Also, countries and companies with oil storage facilities are building up their inventories so as to have oil when needed during and after a disruption of oil traffic from the Persian Gulf, and this is increasing demand for oil now and is driving up the price.