AP John Kilduff

M.F. Global senior vice president John Kilduff is an expert on the energy markets. In this post, Kilduff, a CNBC contributor, discusses why oil keeps rising and who stands to lose. The following comments are his. The video clip is the interview he did Friday with CNBC's Patti Domm.

The great debate over the current level of energy prices continues apace. In some quarters, there is absolute disbelief about gasoline prices that are approaching $4.00 per gallon, and crude oil prices hovering around the $125 per barrel level.

Others are applauding the role of hedge fund investors and others speculators in pushing up prices and are pointing to diesel fuel demand, declining oil output in several key countries, refinery outages, and geopolitical risks that may affect additional oil output. Like most things, the truth would appear to lie somewhere in the middle.

Regardless of the cause of current price levels, there are, incredibly, more losers in this situation than seems imaginable. Consumers, transportation companies, and the airlines are the easy ones to identify in this camp. However, there are others. Refinery profits have been hit hard by the inability to fully pass along the soaring cost of crude oil prices.

As a result, refineries in the United States are running at below-normal levels for this time of year. The profits on the sale of gasoline and soda at the corner filling station are also impaired: they, too, cannot pass along price increases sufficiently and drivers have little left over to buy a coke. But there is no smile to go with that coke these days anyway.

Could even the country of Iran be a loser in the current market? Maybe, but it’s more self-inflicted. They are currently considering cutting their oil output, but not necessarily because they want to drive oil prices even higher. It appears that the market for their sulfur-laden crude is soft, and buyers are demanding a bigger discount than Iran is willing to bear. Iran offshore oil storage facilities, holding some 30 million barrels of crude oil, are reported to be nearly full.

Despite that, there exists a structural consumption deficit that has been overlooked. Recently, the International Energy Agency lowered its global demand forecast for 2008, once again, and it stated further downward revisions were likely. Headlines trumpeting the report focused on the demand decline.

However, if you did the math, even with the slowing demand, the world is consuming nearly 5 million more barrels per than is being produced. That is a serious deficit. Add to that a strong call for diesel fuels from Europe, South America (wintertime), China (stockpiling ahead of the Olympics), and a seeming raft of problems at the refineries that are operational, and you have the makings of some serious justification for current price levels.

While forces appear to be at work, in terms of declining demand, to limit price appreciation, it does not seem out of line to speculate that demand is remaining strong enough, in the face of constrained supply, to justify such an outlook, the investment choice, and current price levels. Once such speculation stops making sense, it will.

Questions?  Comments?  energysource@cnbc.com

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