Oil dynamics pt.2...

Debate is raging on whether it is fundamentals or speculation that is driving up commodity prices. It is most certainly a combination of the two but there seems to be increasing evidence that fundamentals are the main reason that most commodities have reached record levels. Take oil, for example, where imbalances are observed in both demand and supply. The secular demand story is linked to the increasing appetite of energy intensive development in emerging markets. The supply side is a result of random geopolitical shock and growing uncertainty regarding future reserves. The uncertainty comes from both the demand side (China, for example, discloses consumption figures with a major lag and the accuracy of the figures are questionable at best) and the supply side (Saudi Arabia, the world's largest producer, has never really been truthful when disclosing existing capacity and/or future potential).
With so much uncertainty in the air, no wonder speculation is playing a role. But in a situation where demand is accelerating and where supply is struggling just to keep up with that extra demand (not to mention shrinking existing capacity), it is becoming increasingly clear that fundamentals are the main drivers.
This is indeed worrisome if confirmed because it would mean that higher prices are here to stay, leading to far greater damage to the global economy/social cohesion than if it were mainly due to speculation in which case a sudden sharp correction would make it more of a short term issue.