Next Stop: $100 Oil?

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Some analysts refute the argument that speculators and financial institutions are driving the market. "This is not a speculative run-up," says Phil Flynn, an analyst for Alaron Trading in Chicago. "It's an acknowledgment that global demand is surging while supply is tight."

Flynn says that whatever speculative "froth" is built into the price is useful to world markets because it helps moderate demand, which would otherwise rise without constraint. "Speculation has a function," says Flynn. "It keeps the market in check so that demand doesn't spiral out of control."

Refiners Feel the Pinch

The rise in crude prices has not yet affected gasoline and heating oil prices in the U.S., but it is squeezing oil refiners' profits (BusinessWeek.com, 10/10/07). On Oct. 10, Valero Energy (VLO) warned that its third-quarter profits will fall short of Wall Street's forecast, following announcements by Chevron (CVX) and refiner Marathon Oil (MRO) a day earlier about their starker income outlooks. Houston-based ConocoPhillips (COP) kicked off the gloomy reports Oct. 3, saying its global refining margins would be "significantly lower," hampering financial results. ExxonMobil (XOM) is scheduled to report results for its latest quarter on Nov. 1.

Whichever way oil prices go from here, financial institutions will play a key role. On Oct. 12, Energy Secretary Samuel Bodman said that suppliers like OPEC have lost some control over oil pricing and markets now can move more on expectation than the fundamentals of supply and demand. "Prices are now set in trading rooms of New York and London and Frankfurt and Tokyo," Bodman said.

Herbst is a reporter for BusinessWeek.com in New York .