We are used to blaming the high oil price on the misbehaviour of foreigners - leftist leaders in Latin America, satraps in the Gulf and hostage-takers in the Niger Delta - so the closure of the Forties pipeline in the North Sea by the actions of Scottish trade unionists adds a cosy domestic drama to the global energy crisis.

It reminds us how delicately balanced is the supply-demand equation - the anticipated loss of 700,000 barrels per day of North Sea crude is significant, as is the loss of an equal amount from Nigeria, where strikers have shut down ExxonMobil's operations.

Stocks of crude are low and non-Opec oil producers are still struggling to raise output.

Only Opec has the ability to kill this rally and it shows no sign of wanting to do so - even Saudi Arabia and Kuwait have become accustomed to the cashflow and would find it difficult to live with substantially lower prices.

The big question is when the price of crude begins to kill off demand. It is already happening in America, where petrol consumption has begun to decline.

But demand is still robust in Asia, where too many countries, including China and India, protect their consumers from the full impact of pricey crude.

US motorists are filling up less because the credit crunch has made them poorer but also because the price signal is very loud in the United States, undistorted by subsidies or high fuel taxes.

On top of resilient real demand, there has been a surge of “hot money” into the oil market as investors look for returns in the face of cuts in US interest rates. Oil provides a hedge against inflation and a falling US dollar.

Lehman Brothers analysts argue that oil is 30 per cent overvalued largely because of the $40 billion of investors' cash that has gone into the market so far this year.

US interest rates will not stay this low for ever and China surely will be forced to wean its economy off subsidies before long. Meanwhile, that hot money could cool rapidly if the market turned. But this bubble shows no signs of bursting soon.

david.wighton@thetimes.co.uk

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