Wall Street is the villain of this latest oil crisis

Oil shortage? What oil shortage? The US Department of Energy says that there is a world surplus of oil right now, and that it's getting bigger as new oil fields come on stream. Global oil consumption grew 2% in the first quarter of this year, but production increased by 2.5%. The oft-quoted claim by the hedge fund billionaire T Boone Pickens that "when you have only 85 billion barrels a day to cover demand of 87 billion, the price has to go up" is almost exactly the reverse of the true position.

I must say it came as a shock to discover that the oil shortage is a myth. Like most people, I believed that the recent explosion of the crude price to more than $130 a barrel was at least in part a result of increased demand from Asia and the depletion of existing reserves. But it isn't true. We may some day reach "peak oil", but not yet.

Similarly misconceived is the Prime Minister's charge that oil producers in the Opec cartel are choking off supply. In fact, oil producing states have been steadily increasing supply in line with demand. Right now, much of the extra crude they are pumping is actually being stockpiled by oil companies and the US government. Yes, supply is rising at the same time as prices.

Yet, there is a kind of obsession just now with the idea that oil is running out. It is seen as almost immoral to suggest otherwise: an offence against the planet. But in saying that there is no oil crisis, I am not saying that we don't all need to curb fossil fuel use, if only to combat climate change. This precious resource will be exhausted one day. However, we need to raise questions about what is causing the current dramatic hike in oil prices, if only because it is causing enormous hardship in developing countries and is likely to tip the world into an economic recession. And because, as always with economic episodes such as this, someone, somewhere is making a lot of money out of it.

So what is going on? Well, certainly not a rerun of the 1973-74 oil shock. That was a conscious act by an oil producers' cartel, Opec, to cut back production. This time round Opec is very much on the sidelines, as its officials told the US Congress when Opec and oil company chiefs were hauled in to explain themselves.

Opec stunned the legislators by pointing out that oil inventories in the US are now higher than at any time in the past eight years. Production of crude oil by Middle East countries has been increasing steadily since 2003. The US government's own forecast is that there will be a surplus of between three and five million barrels of oil a day by 2010. So, why have crude oil prices doubled in the past year alone? Surely, if there is a surplus of oil, prices should fall.

It doesn't seem to make economic sense, until you look at what has been happening in the international financial markets, where there has been an astonishing boom in speculative commodity trading in the wake of the credit crisis. Oil economists, such as F W Endgahl, believe 60% of the current oil price is due to a combination of cheap money and speculation.

Rather like the dotcom stock market bubble, which burst in 2000, and the housing bubble, which burst in America in 2006, and is bursting here now, the oil-price bubble is yet another consequence of low American interest rates and the decline of the dollar. US interest rates have been slashed from 5.25% to 2% in eight months, almost mirroring the doubling of the oil price. Sub-prime is behind "peak" oil.

When interest rates are below the rate of inflation, investors seek ways of hedging their bets by putting money into assets that will hold their value better than cash or equities. For the past six months, all the financial analysts have been backing commodities, such as oil and wheat, as a safe haven. This has led to something like a repeat of the dotcom bubble. As the oil price rises, more money is invested in the black stuff, causing the price to rise even further. Similar to UK house prices, oil looked like a bet you couldn't lose.

Analysts at Lehman Brothers are saying that commodity index funds have grown from $70bn to $325bn since early 2006. At least some of this has gone into oil. They estimate, further, that every £100m inflow of investment money into oil lifts crude prices by 1.6%. But with new fields opening in Saudi Arabia and Nigeria, and a recession in America reducing demand, Lehmans warns that the oil-price bubble could be about to burst, but not before more billions are pumped into the market.

What is particularly worrying about this speculative boom is that a number of the big Wall Street banks are up to their oxters in it. Goldman Sachs, for example, which recently forecast that oil would reach $200 a barrel, is heavily involved in the oil futures market. It stands to make a lot of money if its forecast comes true. So do other investment banks. These institutions control billions of dollars of oil contracts, and it takes only a few of the big banks to move in a given direction for the entire market to shift. The extraordinary financial power of the banks is one disturbing aspect of globalisation.

But there is one upside to all this. A beneficial side-effect of the current oil price spike has been to give us all a crash course in how to turn the economy green. In America, land of cheap gas, people are learning to use public transport again and sales of SUVs have collapsed. Here, the road haulage industry is facing oblivion. There is talk of building a new fast rail line between Scotland and England, a long overdue infrastructure investment that will benefit the environment and bring Scotland and England closer together.

But if, as expected, oil collapses in price at some time in the next 18 months, all the energy-saving initiatives will go into reverse. People will stop worrying about pump prices and start buying big cars again. People who warn - correctly - that oil will eventually run out will no longer carry credibility. All the talk of peak oil will be seen as specious bubble talk, and the urgency will go out of the drive to reduce CO2 emissions.

This is not sensible. We need a rational international resources policy, policed by governments, not banks. And the public needs to learn the truth about oil.