Oil prices had a bullish week, increasing steadily from $57 a barrel, at one point getting above $62, and then closing at $61.67. Once again the fundamentals of supply and demand had less to do with the price increase than financial considerations. On Monday oil surged in sympathy with a 2.9 percent jump in the Dow Jones. However, by mid-week the picture changed with the release of a Federal Reserve statement saying there are still troubles ahead. This dampened the enthusiasm for equities, but a plunge in the dollar soon increased demand for oil contracts as an inflation hedge. Problems auctioning off massive amounts of US treasury securities and concerns that higher interest rates may be ahead continue to support prices.

US crude inventories dropped by 2 million barrels last week, but considering that inventories are well above normal this decrease is not significant. Demand for oil products in the US is still running about 8 percent lower than last year with the demand for distillates, mainly diesel fuel, down 12 percent.

In Nigeria, heavy fighting between government forces and the Niger Delta militants continues. So far there has not been a significant new reduction in oil production, but the militants are threatening to block the waterways in order to contain exports and hamper support to offshore platforms.

The $20 increase in oil prices since February should be enough to keep OPEC from cutting production at this week’s meeting. The run-up in crude prices and higher costs of summer blends have pushed up average US gasoline prices to over $2.40 a gallon. While many note how cheap this is compared to last summer’s $4 a gallon, every increase damages a struggling economy.

The increase in oil prices at a time when many think they should be falling is starting to refocus attention on the role of speculation in the determination of prices.