http://www.fundmymutualfund.com/2009/10/thestreetcom-oil-price-disconnect-hurts.html
Just a wonderful piece in TheStreet.com by Daniel Dicker on a topic we've touched on in the past. (Jul 7, 2009: NYT - Swings in Oil Prices Hobble Forecasting)

Recently, commodities bulls have been aided by the Federal Reserve keeping rates low and banks' short-term funding flowing. As cash flows into oil futures, their prices rise relative to spot prices. That makes it profitable to buy physical oil, store it and sell it forward.

Yet the indicators that would traditionally signal lower prices — like high oil inventories or OPEC's large spare production capacity — do not seem to hold much weight today, analysts said. "Crude oil prices appear to have been divorced from the underlying fundamentals of weak demand, ample supply and high inventories," Deutsche Bank analysts said in a recent report.

But its moves are reminiscent of last summer, when the sheer amount of money chasing crude overwhelmed the supply-and-demand equation. Says Michael Korn, president of brokerage Skokie Energy Corp.: "It's the same play going on." For many, that play was a tragedy.

As with all things in America the shenanigans going on will only be addressed when it becomes a full blown national emergency. I have not been following the refining space closely the past 18 months but if Dicker is correct, as the world is awash in barrels of oil we could be facing gasoline shortages since refiners are being crunched by the ever rising price of their input. But as readers know, the effect on peasants is not the important thing; what is key is hedge funds are making money as are the investment banks... you know, like JPMorgan storing oil in tankers offshore (backstopped by the taxpayer) since the Fed made money so cheap and it's all about speculation of assets. That's the sign of strength in a new age, finance based economy.

And yes the weak dollar is a part of this but as with all good basis for trades (i.e. Chindia is growing through the roof, therefore it makes sense for oil to go from $70 to $140 in under 2 years - ever hear that one?) it's just part of the explanation.