The political backdrop for the price spike was set, as ever, in the Middle East. When Saudi Arabia’s King Fahd died in early August, it was immediately clear that the impact on oil policy would be virtually non-existent, since the now King Abdullah had been effectively in charge for almost a decade. Nevertheless, the immediate jump in prices was evidence of traders’ nervousness about the merest hint of instability surrounding the world’s largest supplier, in an era when global spare capacity is limited and where Riyadh is the world’s sole swing producer.

A more slow-burning political issue supporting prices has been the gradual increase in tension between Washington and Tehran. Again, the potential for oil market disruption is largely theoretical. For all its neo-conservative rhetoric, the idea of President Bush’s administration choosing to become mired in another military adventure in the Middle East appears fanciful. But in such a tight market, realism is in short supply. ‘The Iranian nuclear issue has been lurking in the shadows for a considerable time,’ says Paul Horsnell of Barclays Capital. ‘It has now come further to the fore in a market which is naturally concerned by potential supply outages when there is very little remaining slack.’

Unrest in Iraq has become such a permanent fixture that the ebb and flow of the insurgency has little impact on oil prices. Yet the ongoing instability has a more material impact on the market, as the country’s oil industry fails to fulfil its enormous potential and so increase the global supply cushion. Production fluctuates from month to month, the northern export infrastructure operates sporadically and a combination of attacks on oil facilities and the more mundane problem of power cuts hampers sustainable output.

Frustration with the pace of improvement was evident in late August, when the US’ Kellogg Brown & Root was relieved of its contract to upgrade the southern oil fields, the bedrock of Iraq’s output.

Not all the blame can be shouldered by the Middle East. Political events elsewhere have exacerbated market nerves: Caracas has been threatening to cut supplies to the US as relations worsen between Bush and left-wing President Chavez; the politically motivated break-up by Moscow of oil giant Yukos has stymied Russian output growth; and social and ethnic tensions in Nigeria pose a constant threat to production.

Consumption

But the immediate explanation for the price rise – which has seen the cost of a spot barrel of Brent crude leap from about $50 a barrel in June to closer to $70 a barrel just three months later – lies firmly at the door of the world’s biggest consumer. Nature has unhappily combined with human failings to create a US product market living on the edge.

A stretched refinery system has for months been having problems delivering sufficient gasoline to fuel Americans’ summer driving. Almost every week, figures from the US’ Energy Information Administration (EIA) show building crude stocks but depleted gasoline supplies, and strains have been highlighted by a succession of accidents and unplanned outages at major refineries.

‘With the market still tightening, the strength of [demand for] US gasoline is likely to increase the sensitivity of the market to potential supply-side events and leave the door to higher prices open, should a significant adverse refinery or output event actually occur,’ said a Barclays Capital research note in mid-August.