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A combination of things

1) There are known fields that could be developed (i.e. ANWR) as well as areas both here and abroad that could be explored. New fields will take about 6 years to come online and for as yet undiscovered fields the time frame would be longer. All the while we are loosing production due to older fields declining. Unfortunately there are likely no Ghawar sized fields out there. Unconventional sources of oil do exist, in Alberta, the American West and elsewhere, and these reserves contain perhaps 1 trillion barrels of oil or more but questions remain as to how much of this could be recovered and how easily. More importantly could these unconventional sources be extracted sufficiently fast to feed the world's 84 million barrel a day oil habit.

2) Demand is probably not yet outstripping supply but it is nudging against it in large part due to growth in demand from China and India. In addition what excess capacity remains is largely Saudi heavy, sour crude difficult for refinery's to process.

3) I wouldn't use the term nefarious but market speculation is playing a role in part because of the underlying market fundamentals already mentioned. Supply is very tight. The least little thing seems to set the traders off. Hurricanes, terrorist threats, Iran, refinery problems, etc... But as to why this warrants $66 oil as opposed to $40 or $80 I don't know.

3) Nefarious trading activities manipulating the market?

There are three names I can think working together that could cause a massive "bubble" speculation on oil prices to happen:

George Soros, the head of the Quantum Investment Fund

Warren Buffett, the head of Berkshire Hathaway Corporation

Peter Lewis, the head of Progressive Insurance

I'll almost bet they working together to heavily engage in "longing" crude oil prices and "shorting" US currency value to ruin the US economy to embarass President Bush. All three probably have a lot of money socked away in Swiss and Grand Cayman banks to protect themselves when the US economy collapses from over-high oil prices.

Nefarious trading activities manipulating the market?

Not so much nefarious as stupid. Although those who consider themselves your betters are certainly celebrating the pain your "oversize" SUV is causing you. Thet believe large automobiles should be reserved for them.

It is the same thing that fueled the dot com bubble and is fueling the real estate bubble: People have built up a sizable amount of wealth, they are greedy for more, and they don't want to take the slow and steady approach for more. Right now, they are bidding up the price of oil and real estate, looking for the next get richer quicker scheme.

Anything demonstrating an upward tick attracts their attention, then the glom onto it and speculate it into the stratosphere. Eventually something spooks the herd (see the dotcom bubble) and they stampede off leaving disaster in their wake.

In 1998/99 the IEA delivered a report which said there would be a worldwide glut of crude oil. The report, which did not take into account any Asian Pacific rim consuption caused oil prices to crash worldwide. Sweet Crude in the Williston Basin (the area where I primarily work as a wellsite geologist) hit a low of 6.50/bbl, $4.50 for sour crude. Drilling here stopped for the first time since the discovery of oil here nearly 50 years before.

This was not a localized phenomenon (similar prices were seen all over), but as it turned out, the reaction was exactly the wrong one for reality. The Pacific rim demand was far more than the Clinton era agency postulated, and further, they failed to take into account development in India.

Gasoline was $0.87 on the East Coast, and everyone was thrilled with how cheap fuel was.

Domestic oil industry workers were out of work, many 20+ year hands left the oil patch for good after three bust cycles and spending the last of their savings to feed the family--again.

In the meantime, low prices caused many marginal wells to be plugged, wells which will not pay to reopen at $100/bbl., but which produced their 10-20 bbl per day, and in aggregate, were a significant source of domestic oil.

A regime change in Venezuela, coupled with a general strike in the oil industry there cut our supply (actually more oil was coming from Venezuela than Saudi Arabia). The 'shortage', if you will is accentuated by the Chinese buying up oil properties all over, especially in Canada, which is a major exporter to the US as well.

But the real problem, in terms of fuel prices, is the fact that no matter how much crude is available, it must be refined before you can use it, and there have been no new refineries built in the past 20 years in the US, while numerous refineries have been dismantled and shipped overseas or scrapped. Thank the environmnetalists for most of this, the NIMBY contingent gets the rest of the credit.

For those refineries which are in operation (currently at 98% capacity), there are all the different fuel formulations which must be catered to and additives to add, which further adds to the expense of production and makes shortages of a particular fuel entirely possible.

Significant contingents of Americans moving further from work in the last few decades have contributed to the problem as well. I remember "living in the sticks" and dad commuting 35 miles to work in the '60s in a little fiat air cooled roller skate so we could live there (I am glad he did) when no one else wanted to live "down there".

The supply of crude is not restricted, except by past economic factors and past/present environmental policies.

Demand is outstripping supply, on a global basis. Oil is a globally traded commodity, and price is not dependant on our policy alone.

Environmental and other lobbies have combined to restrict our ability to manufacture the petroleum products we use most. This has amounted to de facto manipulation of the available supplies, from an unanticipated (for many not in the industry) and non industry source.

While wartime speculation may cause some of the increase, this is only a small part of the price. The Clinton IEA blew it, plain and simple.

The rest is a synergistic combination of other factors.

For most people, this would not be a significant problem, if they were not leveraged to the hilt. With the era of cheap credit coming to a close, the crunch is on.

So I am waiting for a cheap SUV/1 ton pickup, and a nice outlying home for 20 cents on the dollar.