Oil prices driven by supply and demand - it is not so simple.


"..Supply and Demand Are Not Alone in Driving Up Oil Prices:

The price of oil is driven by much, much more than supply and demand. This was proven in 2008. Thanks to the recession, global demand in 2008 was actually down and global supply was up. Prices rose, nevertheless. Oil consumption decreased from 86.66 million barrels per day (bpd) in the fourth quarter 2007 to 85.73 million bpd in the first quarter of 2008. At the same time, supply increased from 85.49 to 86.17 million bpd.

According to the laws of supply and demand, prices should have decreased. Instead, they increased almost 25% in that time - from $87.79 to $110.21 a barrel. (Source: EIA. See Google Spreadsheet)

Commodities Trading Drove Up Oil Prices

Why? Although the EIA pinned part of the blame on volatility in Venezuela and Nigeria, it warned of an influx of investment money into commodities markets. Investors were stampeding out of the falling real estate and stock markets. Instead, they diverted their funds to oil futures. This sudden surge drove up oil prices, creating a speculative bubble. (Source: EIA Short-Term Energy Outlook)..."