Oil's astounding price rise is now a platitude on the Wall Street, nevertheless the increase is genuine and it will keep going up until the supply of oil can draw alongside the increasing demands. In the recent month, the increase in demands from China for more diesel fuel has resulted in the increase in oil prices. China requires diesel to run its quake hit power plants, as many of the working power plants are cut off from its usual supply of coal due to the earthquake. Also, many power plants suffered damages during the earthquake forcing people to use diesel generators.
The fact is that even at the price of 133$ per barrel, the demands originating out of China are not satisfied and since there is no increase in supply, the price of oil is expected to touch the amount of 200$ per barrel in the near future. It is quite visible that the price rise in crude oil cannot be considered to be a bubble. The increasing growth in global demand is not in tandem with the growth of supply. It is not a recent factor, it has been going on since the last seven to eight years and it is believed that it will continue.
Those who are eager for the oil prices to return to normal any moment soon may be let down. Oil prices were locked in "contango," with spot contracts dealing at a lesser value to futures; oil for release in the month of December 2016, the ceiling date on which oil can be exchanged at the New York Mercantile Exchange, finalized at $138.38 per barrel. This shows that the market is also interested in the future, 6-8 years from now.
Speculation plays a major part in the increase of oil price. At least 20 to 25 dollars increment is due to market speculation. It is possible to reign in the speculation by increasing the interest rates by United States Federal Reserve, stabilizing the dollar, and by making figurative and major changes in supply.
The rise of crude oil prices has also affected the Wall Street. The increase in oil price caused the Dow Jones to fall 189 points while NASDAQ lost 35 points, as the price of oil per barrel increased and the Federal Reserve issued its minutes that showed that the Central bank is concerned about inflation and falling GDP which are a direct result of the increase in oil prices and weakening dollar.
The falling Wall Street and the recent strengthening of the Euro against the dollar is not an encouraging sign for oil because when the European Central Bank thinks it can increase its interest rates to offset the rate of inflation; it will mean that the dollar will weaken more. All these factors show that the increase in crude oil prices is here to stay a long time.