Speculators have set a new record for making bets whether the oil will continue its surge, a trend that some market experts believe could push the commodity even higher.
Traders without a commercial interest in oil held 430,118 contracts as of March 1, a surge of more than 25 percent since the revolt in Libya began capturing global headlines in mid-February.
That coincided with an 18 percent increase in the price per barrel of West Texas Intermediate crude , which is above $100 a barrel now. The Mideast unrest combined with traditionally rising demand in the spring and summer months ahead could put sharp upward pressure on prices.
"Speculators are having a huge effect on the market," said Darin Newsom, commodities analyst at DTN in Omaha, Neb. "A lot of this is betting on the idea that we are going to see some sort of supply disruption later on, and that we could still see seasonal demand continue to grow."
Speculators took much of the blame when oil hit its historic high of $147 a barrel in 2008. But as consumers changed their driving habits and started to conserve, the trade quickly unraveled and prices plunged to $35 a barrel in five months.
Dennis Gartman, author of The Gartman Letter, a widely followed market guide, believes speculators have added up to $15 a barrel to the current price, enough to take it out of its previous trading range.
Those holding the record long positions, then, will end up "holding a paper bag with a hole in the bottom. I think they can take $10 out of the crude oil so fast it'll make your head spin."
Oil fell Tuesday though the situation in Libya looked no more settledthan it has since anti-government forces rose to challenge strongman leader Muammar Gaddafi.
The rise in oil began as domestic unrest grew and governments were toppled in Tunisia and Egypt. But it intensified since the violence in Libya sparked greater fears of contagion and the possibility that world oil production could be curtailed. OPEC ministers hinted Wednesday that supply increases could come should oil keep rising.
But the speculators remain, and Newsom said he is closely watching the $109 range as a technical resistance point. Should that fail to hold, he believes oil will challenge the July 2008 high of $147.90 a barrel.
"If gasoline demand does increase over the spring and summer and starts to pull down our supplies, it's going to give us a better chance of getting to and taking out those 2008 prices," he said. "If this curtails demand and economic growth starts to fall down...this rally is going to have a very difficult time surpassing 2008 levels."
Underlining the concerns over oil is the rising price at the pump, which is above $3.50 a gallon nationally for regular unleaded.
Should consumer price pressure continue to build that could lead to calls like those in 2008 for greater regulation over speculators. Those who support regulation believe too many people are allowed to enter the markets now without a proven ability to cover margins, creating both price pressure and the risk of major market disruptions.
"Speculation is good, but we need to be able to know that those people speculating are well-enough capitalized so that they can handle what they're doing," said Phil Silverman, head trader and managing partner at Kingview Management in New York. "You've had oil spike so much so quickly. It's not the end user that's doing that and it's certainly not the hedgers that are doing that."
Opponents of more regulation point out that for every long in a commodity trade there has to be a short, unlike in the stock market.
But Gartman predicted the longs will get washed out soon as fears subside over the Libyan situation and some order is restored to the markets.
"Of course they will, that's the nature of this beast," Gartman said. "They're going to get hurt. They always do."
Though he refrained from a specific target number for the oil price, he said it will be "demonstrably lower...as long as there are not any countries that call out their own jets against their own people."
