What will it take to kill the oil price rally, an almost continuous price escalation since the beginning of the decade? Even the collapse of a big American investment bank and a near certain US recession is not frightening the horses. The chariot rolls on, stampeding over the bodies of short-sellers, sucking the life out of the plummeting dollar and drawing strength from the tidal wave of cash flowing from central banks.

It is all extremely annoying for the bankocrats at the US Federal Reserve, who have been doling out spoonfuls of liquidity in the form of 28-day loans to money market traders. Even before the ink dries on the fresh dollar bills, their value has been crimped by the Forex markets. None of the new cash seems to be doing the job intended - shoring up the value of loans to the crippled US housing market.

If the Fed's happy pills are not cheering up banks and opening up mortgage markets, where is the money heading? We can only guess that a great deal of the spare cash is making its way to the last surviving brothel in Lower Manhattan - the Nymex exchange where they trade West Texas Intermediate crude oil futures.

Non-commercial betting on WTI by hedge funds and other speculators is blamed for the recent surge to $111 a barrel, but the fault is not with the gamblers. Most of the open interest at Nymex is commercial - oil companies, refiners and utilities hedging their exposure to the most important energy commodity. More important, up until now these gamblers have been getting it right.

If this were merely a financial casino, the odds on an eight-year winning streak are too long. The speculators bet correctly on rising demand in China and India and they then correctly assessed that investment by oil companies had been too little for too long to satisfy rising demand for crude. Their third and final bet has been that oil nationalism would curb access to more crude and prevent new investment from bringing more crude oil to market.

All three bets have paid off for the oil-soaked hedge funds. What we have been seeing over the past three years is a massive reallocation of capital from oil consumer countries to oil producing countries. The dollars have been sucked out of the pocket of the American motorist and exported to the Gulf, where they are needed. Before 2000 the oil industry had struggled through two decades of investment famine. Infrastructure was rusting - the evidence all too visible in fires in Texas, leaks in Alaska and a weak supply response from Opec. If you want bubbles, look at the dot-com boom and the telecoms and media hysteria. The oil price escalation is nothing more than a desperate cry for capital - oil producers need cash and the sound of ripping and tearing in Western markets is the sound of money quitting silly investments and moving to profitable ones.

Short-sellers have been active, too, increasing their exposure by 8 per cent over the past month, about 74million barrels. They can smell the sickness of the US economy. It is not just the shrieks from falling Wall Street bankers. It is the trail of evidence of weakening US demand - product deliveries by US refiners are sharply down since the beginning of the year, about 621,000 barrels from the same period in 2007. Petrol consumption is also drifting downwards when US stocks of petrol are at five-year highs.

Will the sickly US consumer drag the global economy into a massive slowdown that puts Chinese factories out of business and leaves the Saudi sheikhs floating face-down in a lake of unsold crude? The futures market tells a different story. It is not the crude price over the next three months or even a year that matters, argues Jeff Currie, of Goldman Sachs. If you want to understand where oil might be going, look at the long end of the crude futures market.

You can fix your cost of oil as far out as 2015, and the interesting thing about those distant prices is that they have been rising faster than the prompt prices of Nymex crude.

Oil for delivery in April was priced at about $107 yesterday, the price rising a couple of dollars as traders quickly forgot about Bear Stearns. December crude was cheaper, priced $102 to reflect the nervousness about Americans' continuing addiction to motoring when the bank is seizing the keys to their homes.

But look further out to December 2010, 2011 and 2012 and the crude price is virtually unchanged at $100 a barrel. The market seems to be saying there is a strong likelihood that demand for crude will remain strong and that the world's ability to supply it will remain restricted for years to come.

Look at what is happening in the world at large and you see ample evidence that the futures market is right. If rich-country appetites dwindle over the next 18 months, Opec will react. They need a crude price of more than $60 a barrel to pay their bills and their recent behaviour suggests that they like $100 oil. They can easily cut output - the Saudis will take the hit - if necessary. Meanwhile, there is little evidence that the oil majors will produce more oil. They are not finding much and they are unwelcome where it is easily found. What they have, they struggle to produce fast enough.

The evidence suggests that the price of energy will dip and then continue its upward climb.

carl.mortished@thetimes.co.uk

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