For years, the Organisation of the Petroleum Exporting Countries (OPEC) has argued that oil prices are being driven by external factors such as the weakening dollar and speculators — and are thus out of the cartel’s control. And for years, sceptics have dismissed such claims as cover for the cartel’s greedy unwillingness to pump more oil. Recently, however, even the sceptics are acknowledging the price-pushing power of non — OPEC forces in the oil market — forces that could be doing importers as much damage as anything the cartel ever tried.

The most obvious is the sagging dollar. Because oil is priced in dollars, and because the dollar’s value has fallen nearly a third against major developed-country currencies since 2002, Americans are spending more — perhaps as much as $20 more — for a barrel of oil. And that pales against what speculators might be adding to the price.

Although all commodities can be manipulated by speculation, oil is especially vulnerable. First, oil is prone to supply disruptions, whether from hurricanes or border wars. Second, the global oil system is highly opaque. It has so many pieces — producers, refiners, shippers and distributors — that no one knows precisely how much oil is in any given place at any given time. This means that estimates of how much excess inventory is in the system - and thus, how big a buffer we have against a disruption.

So when the US Department of Energy, for example, announces a “surprising” decline in US oil inventories — and by implication a smaller buffer — the oil market responds by driving up prices. And while there’s nothing criminal about betting on price, it is a problem when the bets themselves influence the price. If enough traders gamble that oil prices will rise over, say, the next 30 days, then the price of 30-day oil futures contracts will rise — the classic self-fulfilling prophecy.

Just how large this “speculative premium” is has become a matter of intense debate. Given that these extraction costs run between $15 to $19 a barrel worldwide, the “correct” price should be somewhere between $45 to $57. Indeed, as recently as 2005, OPEC itself claimed that $45 was a reasonable price. If that’s true, then we’re paying a speculative premium of up to $45 for each barrel, or about $1 for each gallon of gasoline.

Meanwhile, Washington’s free-marketers should bear in mind that the cost of the speculator premium goes beyond angry motorists. Every dollar increase in oil prices represents a huge bonus for oil exporters, not all of whom can be trusted to use it wisely. Iran, for example, is now raking in roughly $5.5 billion extra a month because of the speculator’s premium — cash that could be used to fund any number of nasty ventures, and that could offset whatever economic sanctions Washington manages to deploy against Tehran. In the ultimate oil irony, even the merest mention by President Bush of sanctions against Iran is enough to push up oil prices - and thus to send even more dollars to Tehran. — The Christian Science Monitor