The spike in oil prices, currently around 75 dollars a barrel or about three times the level of four years ago, is a result of geopolitical and technical factors that seem unlikely to disappear soon.
GEOPOLITICAL TENSIONS:
Topping the list is tension between Western countries led by the United States, and Iran, over Tehran's nuclear research program, along with chronic unrest in Nigeria.
Referring last week to the effect of the Iranian situation on oil prices, Mitsubishi Corp energy risk manager Tony Nunan warned: "There is so much uncertainty with Iran and the real problem for the market is that Iran's real main weapon is oil and when push comes to shove they will do something about it."
Iran is the fourth-biggest producer of crude oil in the world.
Security analysts also believe that in case of a conflict, Iran could block the Strait of Hormuz, a strategic choke-point for oil exports to Japan, the United States and Western Europe. Any shortfall would be hard to make up, given that most oil producers are pumping crude at close to their maximum capacity.
A second major point of tension is Nigeria, where separatist guerrillas have stepped up attacks since January on the oil industry in the Niger Delta, forcing firms to cut the country's 2.6 million barrel-per-day exports by more than 20 percent. Both Iran and Nigeria are members of the Organisation of Petroleum Exporting Countries (OPEC).
LACK OF REFINING CAPACITY:
Oil analysts and OPEC repeatedly underscore the issue, and hurricanes last year in the United States focused attention on weaknesses in the refining sector, which has become a serious bottleneck.
No refineries have been built in Europe and the United States in the last 30 years and existing facilities often require major repairs.
On top of that, some refineries cannot handle heavy crude, which is all producers can provide on top of their usual output. A lack of refined products such as gasoline (petrol) and heating or diesel fuels has contributed to increased crude oil prices.
In the United States, new environmental standards will require that ethanol be added to gasoline, with refiners worried they may run into shortages there too.
On Wednesday, figures released by the US Department of Energy reinforced concerns about gasoline constraints heading into the US summer holiday season.
The DoE said that inventories fell 3.9 million barrels to 207.9 million over the previous week. Gasoline supplies have fallen by 18 million barrels in six weeks and are 1.9 percent below their level a year ago.
SUSTAINED GROWTH IN DEMAND:
Almost simultaneous rebounds by economies world-wide in the past two years has led to a surge in oil consumption, particularly in China and the United States, and is expected to continue this year with global economic growth of 4.9 percent forecast by the International Monetary Fund.
The International Energy Agency (IEA) estimates that global demand for oil will grow by 1.8 percent this year, to 85.1 million barrels per day (bpd).
LACK OF PRODUCTION CAPACITY:
Oil producers are finding it hard to meet the surge in demand. Most producer countries are pumping all they can and only Saudi Arabia has real spare capacity. That crude is heavy, however, and difficult to refine.
The lack of spare capacity, which acts as a safety cushion in the event of disruption in a major producing country, is a serious source of concern for many market players.
In general however, problems in the past few years have been taken to heart by both producer countries, which are increasing investments little by little, and by consumer countries which have rebuilt strategic stocks.