Oil hits $103.95. Yawn. It seems rather obvious to me that the recent run up in oil prices has come primarily from a declining dollar and fears that inflation will errode the value of conventional (read: fictional) financial instruments. But when CNN runs an article suggesting that, but for all this insane "speculation" in oil, it would be trading at $60/barrel, I need to pull out my broken record player.
It's still the demand inelasticity.
I get the impression that most financial pundits cluttering the news these days have only recently even thought about commodities, and have spent most of their careers thinking about equities. Why is this relevant? Because, with equities, speculation can dramatically over-inflate the price beyond any immediate underlying value. There is no check whereby, within a relatively short time, the owner of that equity must demonstrate that the underlying assets actually have some real value now by selling them (and not merely selling the equity to another speculator). Not so with oil (and other commodities). At the end of the day (or, here, at the expiration of the contract), either a grass-roots consumer is actually willing to shell out cash for an oil-derived product, or not. Speculators cannot drive the price of exchange-traded oil higher than consumers are willing and able to pay at the pump. There is, admittedly, a bit of a lag here (most contract volume is at least a month out, and there is a delay between contract settlement and that price working through the refinery and distribution chain to the end consumer). But oil prices have been above $60 for some time--much longer than is necessary for these higher prices to reach the end consumer. Bottom line: unlike equities, there is a fundamental reality check imposed on commodity speculation. There simply isn't enough volume in long-dated contracts, nor enough spare storage capacity for arbitrageurs, to get around this.
I don't know what school of economics these pundits attended (OK, actually I do, but that's not the point), but where I come from, something is worth precisely what you can get someone else to pay you for it. This applies directly to consumables, and in light of the housing bubbles in parts of the US, a more inclusive definition may be "something is worth precisely what you can get the end-consumer to pay for it." Here, the end consumer seems willing and able to pay $100/barrel for oil. If that changes, for whatever reason, then the price of oil will change, regardless of "speculation."