This heading would have seemed far-fetched as recently as a year ago.  How/why did we get here so quickly?  A number of factors have come together to create the current scene.  I will comment briefly on a few of them.  Foremost is the relationship of supply to demand.  For years, demand has been growing in excess of supply growth as many undeveloped countries have reached higher levels of prosperity and, with it, a greater desire for automobiles and other fuel consuming products.  In developed countries, the thirst for fuel also continues to expand with two to three car families, plasma TVs, computers and numerous forms of gadgetry that require some form of power.   At the same time, many of  the large, older crude oil reservoirs around the world have gone into decline and are producing less  despite new technologies designed to offset the loss.  The industry continually seeks new fields to develop, but the low hanging fruit has been plucked.  New discoveries are being announced around the world on a regular basis, but they tend to be very deep and complex to produce. Many are potentially huge, but will require extensive, complicated infrastructure and may be years from commercial development.
 
Some 80%, or more, of the world's reserves are controlled by foreign governments and state-owned oil companies.  It is easy for profits from such operations to be diverted to social programs rather than being reinvested in exploration, development and technologies to enhance production.  Geopolitical concerns abound.  Currently, the fear of an Israeli/Iran confrontation has raised concerns about Mideast supplies.  Many of the African oil-producing countries are dealing with revolution and insurgency.  Russia has seen its production begin to decline, largely from lack of reinvestment, but also from government intervention in the industry.  Some feel that speculation in the commodity markets has been a contributor to higher prices.  That may be true to some extent, but it is difficult to quantify and, therefore an easy media target. 
 
We have had a long, sustained rise in oil prices.  It is likely that a cyclical correction will occur, whether it be from decreased demand caused by economic problems around the world, resolution of any of the problems cited earlier or an unknown event.  Such a decline might be sharp and steep, but probably not permanent.  It would help with some of our economic and inflation problems cited earlier in this letter.  However, the imbalance between supply growth and demand growth appears to be long-lived and, likely will support rising prices on a long-term basis.  Conservation and alternative energy programs could help in the future.  The latter might be significant, but progress has been slow and expensive and appears to be many years from having a significant impact.