Darwinian: It depends whether you are talking short-term or long-term. In the short-term, speculation is extremely important, in the long-term, not very important. As an example, if speculation drove the price down too far eventually shortages of product would occur. Your desire for the price of crude to closely track supply and demand is understandable yet uninformed. Anything you can speculate on is in the same position. Often companies with strong growing earnings and solid balance sheets will see their share prices languish, sometimes so much so that they become takeover targets. Other companies (like most dot coms)get speculated upward based on baloney then blow up.      

Boy, 'any damn fool' gets quite a reaction.

As for price being influenced by anything you can imagine - prices are set by human beings. As a matter of fact, price itself is something that is imagined, looked at in the sense that price is a human construct, agreed to by those engaged in the transaction. For example, the money I use to pay for things every day does not say anything about the United States - and the price is not in dollars anyways. The fact that you imagine a factor to have nothing to do with price has absolutely nothing to do with two other people thinking it does - and if they are the ones buying and selling, your not being able to imagine what is influencing them is meaningless. To give a hint - look at how the Soviet Union used oil as a political tool.

As for the example of oil leaking - a bit obscure, but I decided to leave the explanation out. In Saudi Arabia, the infrastructure in place has been fairly simple to build and expand, and in that sense a barrel of oil in Saudi Arabia tends to have a production 'price' value which seems to be either in the penny or very low dollar range. On the other hand, the oil being produced in Alaska has extensive costs associated with it. In other words, what is the 'price' of a barrel of oil being leaked in the desert compared to the tundra? For the oil producer, that difference is measurable in terms of cost, as compared to price. This was a poorly done reference to the idea that the cost of producing oil keeps going up (in terms of infrastructure, for example), regardless of the price. Oil may be fungible, but the cost of production has a certain influence on how much the oil is worth, regardless of price.

Price is not an illusion, far from it, but price is not physical reality either. And I didn't even begin to touch upon EROEI - is it possible to even have a price for something which could be seen as negative - if it takes 5 units of X to produce 4 units of X, is price relevant? At some point, price capitulates in the face of reality - if you can imagine that. For example, how much does a passenger pigeon egg currently cost, or is price just a foolish perspective in terms of passenger pigeon eggs, from someone being anything but funny?

On the price of oil, inventories have in the past played a role.  Traders look at the numbers and then in a few minutes the price moves.

On inventories, the following points make the number not very meaningful:

1. Now (9/06) the only reason US oil inventories are up are because of draw downs in the US SPR that haven't been replaced.  
   
2. As Days Forward Cover, current US inventories (minus SPR withdrawls is at the low range.
   
3. Minimum US crude oil stocks for proper functioning of the system according to Matt Simmons are between 280 and 300M barrels - now we are "awash" with crude with 325M barrels, that only 1 to 3 days of supply before problems.
   
4.  Almost all countries in the world except the US (because we've drawn down and not replaced our SPR) have lower than average oil stocks in 2006.

1. Drawdown in US SPR
   

http://www2.spr.doe.gov/DIR/SilverStream/Pages/pgDailyInventoryReportViewDOE_new.html  Strategic Petroleum Reserve Net movement of 13.4M total from Sept 05 through Oct 06.  Net US SPR drawdown of 11M barrels, net OECD donation of 2.4M barrels.  No new fillings of US SPR ordered since Sept 05 and for foreseeable future.

2. Days cover (from 1999 but recent info not available: http://tonto.eia.doe.gov/oog/info/twip/twiparch/050323/twipprint.html)  

3. Matt Simmons on "minimum level" of inventories http://www.simmonsco-intl.com/files/060997.pdf

3. Data for European and Asian Oil Stocks http://omrpublic.iea.org/stocks/ct_cr_ov.pdf#search=%22oil%20stocks%20iea%202006%22
   

Ron ..

As near as I can figure it .. all the dynamic
forces in the market place are played out on
a daily basis and reflected in the then current
spot contract price .. All the industry players dealing
in the actual physical commodity price their "deals"
at some differential to that  spot price ..

Triff ..

Speculators and hedge fund managers ARE supply and demand. If they bet on the wrong "correct" prices, they pay for it in the long run.

(Not necessarily quickly, though. I believe there's a big correction coming up, from the fact that the market has ignored that oil is finite and immensely hard to replace, but this underpricing has been going on for decades.)