The relentless rise in the oil price over the past seven years towards $60 is a result of the constraints in the supply of oil as global demand has accelerated, fuelled by strong global economic growth in recent years.
With most members of the Organisation of the Petroleum Exporting Countries pumping to full capacity and non-Opec supply flattening out, particularly in Russia, concern has grown over the last 18 months about the lack of spare oil production capacity to act as a buffer in the event of any significant supply disruptions.
Over the past year, that concern has spread to the refining sector as growth in demand for petroleum products such as petrol, diesel and heating oil has gobbled up the excess capacity that had previously choked off any appetite for investment in new refineries.
Energy analysts say the oil price rise is driven by faster growth in global demand, fuelled largely by China's industrialisation and continued strength in US consumption, which accounts for a quarter of global demand. This phenomenon is in contrast to the price increases seen in the early 1970s and 1980, which were caused by major supply disruptions.
“We are in a demand shock,” said Mike Rothman, head of oil research at International Strategy and Investment Group, a US investment research group.
Global demand growth has doubled since 2000 compared with the 1990s.
The oil price has quadrupled from the 1998 average of about $14 in US benchmark terms. So far this year, the US West Texas intermediate oil price has averaged more than $50 a barrel, almost $10 higher than last year's average.
The July WTI on Monday hit a nominal record of $59.23 a barrel in New York. But WTI prices quoted for the rest of the year were above $60, a level not seen since prices were falling from a peak, equivalent to $80 a barrel in today's prices, reached in 1980.
Monday's price rise was fuelled by fears of a Norwegian oil workers' strike, which could affect up to a third of output by the world's third largest oil exporter. But so far higher prices have not dented demand.
Deborah White, senior energy economist at Société Générale, said US demand growth for petrol was now averaging about 3.3 per cent, double the rate of growth in February. “So far there is consumer resilience to higher prices,” said Ms White.
Mr Rothman said current market behaviour implied a belief that the only way out was to reduce oil demand as projections for new supplies were unlikely to satisfy current growth estimates.
India on Monday became the latest big oil importer to try to damp demand by allowing its state-run oil marketing companies to increase retail petrol and diesel prices for the first time since November in an effort to bring prices more in line with global oil prices and cut the losses incurred as a result of subsidies.
This followed moves by China, Indonesia, Thailand and other big Asian oil importers to cut skyrocketing subsidies. Ms White said it was too early to tell whether this had eased demand growth in Asia.
This week, the US Senate is expected to conclude debate on long-stalled energy legislation that seeks to reduce US dependence on imported oil. The measure, which provides incentives for alternate fuel sources and encourages conservation, has become a top priority for the White House and the Republican-controlled Congress, both eager to show voters they are moving against higher petrol costs.
“The primary cause of rising gasoline prices is that global demand for oil is growing faster than global supply,” Mr Bush said last week, calling on Congress to pass the legislation.
This week, senators are also expected to vote on several proposals to cut US emissions of greenhouse gases associated with the consumption of fossil fuels. This could put Congress in conflict with Mr Bush, who has so far resisted international pressure to back mandatory emission cuts.