Page last updated at 17:01 GMT, Thursday, 22 May 2008 18:01 UK

Why high oil prices are here to stay

Stephanie Flanders
By Stephanie Flanders
BBC Economics Editor

Man cycles past fuel supplies in Indonesia
There are many factors driving oil prices.
There's no shortage of explanations for the record rise in oil prices. The trick comes in working out which is right.

You can go back to the laws of supply and demand - oil demand from Asia has been growing fast the past few years.

So far, the supply of oil hasn't kept up. Global oil production barely rose last year despite record prices and high demand.

Then again, the rise of Asia isn't exactly anything new.

It's hard to see what's happened recently in China to justify a doubling in the price of oil in less than a year. If anything, the growth in China's oil demand has been slowing down.

That's why many blame speculators for the price rise - investors in the market betting that prices will keep on going up.

Still others say it's down to oil producers deciding they'll make more money by keeping the oil in the ground than by digging it up.

The truth is probably all of these factors have played a role. And the oil market probably has got bit ahead of itself.

But the speculators are betting on something that's almost certainly true. In a more global economy, there's going to be tougher competition for oil supplies, and higher oil prices will be with us for a while.

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