Isn't the real problem that oil is produced by a cartel that controls prices? Can't the oil-producing countries just put more oil onto the market to decrease prices, if they wanted to?
The issue is that oil producers have no incentive to increase supply: they have a fixed amount of oil under their land, and releasing it slowly makes them more money. Commodities speculators are also tying up some supply (in offshore tankers), but there is more oil in the earth than there is in investment-bank-owned tankers.
OPEC members continuously cheat on each other. The reason oil prices collapsed in the early 1980s and stayed that way for two decades was because OPEC had no teeth. Somebody would always overproduce and reap the lion's share of the rewards, and then everyone had an incentive to overproduce.
OPEC also has an interest in keeping oil prices low over time. When oil prices are higher, people start investing in more efficient technology, reducing their overall need for oil, and consequently, OPEC's potential for political pressure.
The supply increased while demand decreased last year, why then should oil prices be skyrocketing? Has the Libyan oil production slowed down enough to explain the price hike? I don't have any numbers, but the explanation in the article makes a bit more sense than the cartel theory given numbers for the past decade.
Are you referring to the graphs in the article? The data presented by the article is fundamentally flawed because they show U.S. consumption and production, yet oil is traded on a world market. The U.S. is only a tiny part of world oil production (roughly 11% according to Wikipedia - http://en.wikipedia.org/wiki/List_of_countries_by_oil_produc...). It's a somewhat larger part of world oil consumption (a little over 20% - http://en.wikipedia.org/wiki/List_of_oil-consuming_states), but still nowhere near the total world market.
The article's comparison of Chinese oil consumption with speculator purchases was also specious. Without knowing how much speculator oil was then sold back to consumers, we can't draw any conclusions. To see why, imagine a world that consumes 2.5B barrels of oil per month, and where it takes a month for oil to make it from field to refinery. Now imagine that someone invents a way for oil companies to lock in their price at the time they pump the oil, and not have to wait until they can sell it on the market. We'll call it a futures contract, but it's really exactly the same mechanism that your retail store works by. They buy the goods at one point in time, hold on to them as inventory for the time needed to bring them to market, and then sell them on the open market. At no point does the futures contract holder physically take possession of the oil (this is where financial markets differ from retail trade).
At any given time in this model, financial firms own all of the oil on earth - 2.5B barrels of it. As soon as it comes out of the ground, they buy it, and when it's refined, they sell it. Yet the physical industry - the amount of oil produced and consumed, the means of production, and the price of that oil - hasn't changed one bit. The only difference is that financial firms now bear the risk and reward for any change in the price of oil between when it is produced and when it is consumed.
This model isn't all that different from how the industry actually operates (including the numbers), but some details have been simplified.
Anyway, my point isn't that speculators aren't to blame for the price of oil. My personal opinion is that it's a combination of speculation, peak oil, a rise in consumption by China, geopolitical instability, and plain old price inelasticity, with speculation and peak oil being minor factors and the major ones being China and price inelasticity. But the article has presented no useful data - he quotes a bunch of articles and statistics, but the stats he quotes are not relevant to the actual dynamics of how the industry operates.
The issue is that oil producers have no incentive to increase supply: they have a fixed amount of oil under their land, and releasing it slowly makes them more money. Commodities speculators are also tying up some supply (in offshore tankers), but there is more oil in the earth than there is in investment-bank-owned tankers.