Political uncertainty and strong demand have combined to drive up international oil prices over the last year. The trend is now attracting headlines, as prices reach $40 a barrel, 42 per cent up on 2003. Levels not seen since 1990 are being reflected in international retail petrol prices. Markets are down partly as a result of these increases. But they are also responding to more positive news about growing employment in the United States and the likelihood that interest rates will rise there soon.
The huge demand for oil in China is affecting the tight balance between supply and demand in the world oil market. These are contradictory pressures, from which it would be wrong to draw premature conclusions.
The deepening problems faced by the US-led occupation forces in Iraq certainly contribute to market volatility, as resistance forces target oil pipelines and refineries there. So do reports of attacks on oil facilities in Saudi Arabia orchestrated by fundamentalist Islamic groups who also destroyed the headquarters of the security police there.
These political factors will continue so long as the Iraq issue is unresolved; but their impact so far should not be exaggerated. Specialists point out that damage to Iraq's oil infrastructure has been slight and quickly repaired, while the Saudi attacks are localised and have been contained. Scare stories recalling previous oil price booms and shortages in the 1970s and early 1990s are unwarranted by the information available, notwithstanding such worrying trends.
The Saudi oil minister, Mr Ali Naimi, surprised observers this week with his call for increased OPEC production quotas, which reversed the previous position taken by his government. "We do not want to see oil prices at the level that they negatively attack the growth of the international economy or the demand for oil", he said.
His statement, though significant, is more symbolic than real, because excess production has already breached the quotas. Tight production conditions mean there is little leeway to increase supply to meet rising world demand, which is increasingly affected by the boom in China.
One way or another this is not good news for President George W. Bush. Nor are yesterday's stories about increased US trade and budget deficits. The last thing he needs in an election year is an oil price scare diverting attention from relatively good employment growth - especially if it is related directly to worsening conditions in Iraq.