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Over the past few weeks the debate has been raging, is it speculation driving oil prices or is it pure economics 101, not enough supply to keep up with demand? There are some big names on both sides. George Soros has been public about his belief that oil speculators have driven the recent price surge and that something must be done about it. Soros believes that speculators are causing a bubble in oil that could cause a massive recession in the American and global economies. Jim Cramer, the famous host of CNBC's Mad Money, is on the other side of this argument. Jim believes that oil prices are high because demand is rampant. Cramer also says that people should get use to the high oil prices, because they are here to stay.

The truth here is that both of the crowds have a sound argument. Demand form foreign nations has absolutely skyrocketed for a number of reasons, not the least of which is that many Chinese are buying cars now instead of riding bicycles. Supply also has not grown because there have been no more oil finds and OPEC is perfectly happy with high prices. On the other hand, the speculation argument is lent plenty of credence when we consistently see the massive swings in oil prices that we have recently. Oil prices gaining $11 in one day is almost unheard of, and for someone to say there is no speculation there, they are crazy.

I think the bottom line is that the overall move higher by crude oil is certainly supported by an economics 101 argument of too much demand for too little supply. If demand from foreign nations continues to grow at alarming rates, there will be very little that America can do about the price of oil if there aren't some major policy changes. In the short-term I think that the speculators have caused crude oil prices to be inflated. When you have people daytrading oil you are bound to see major emotional runs like we have of late.

I think its reasonable to assume that at some point the short-term inflated price of oil will prove to be a bit of a bubble, but I believe that the long-term trend will continue to be higher.