Now, throw a little lighter fluid on this kindling of geopolitical unrest and you've got a recipe for steadily rising prices. That lighter fluid is the unfettered access to financial oil products. One factor that no one bothers to look at, but which has become vital to oil prices, is the equity indices, which are now reaching their highest levels since June of last year and since the spring of 2008. My book Oil's Endless Bid describes this in detail, but the most simple truth is that money flows as easily into hard assets such as oil as it does into the stock market. So it's not just speculators buying oil on the prospect of continuing tensions in the Mideast and the removal of Iranian barrels from the global market that are driving up energy prices. It is the hedge funds, money managers and institutional funds adding to their commodity holdings as they continue to buy stocks. It sounds bizarre, but it's true: Asset investments -- bets on oil -- are costing us every time we fill up. And with the Iranians refusing to back down on their nuclear aspirations and stock markets around the world in recovery mode, only a major financial setback in Europe or China is likely to derail this oil rally.
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