Plain-old fundamentals of demand and supply

This is an article featured in today's Straits Times, taken from the New York Times.

http://www.nytimes.com/2008/05/12/opinion/12krugman.html

Essentially, Prof Paul Krugman is saying that it is not "speculators" (people who quickly buy and sell) who cause the price of oil to increase, but it's the simple fundamentals of demand and supply that have caused the oil price to increase.

Specifically, he mentions that it is "the growing difficulty of finding oil and the rapid growth of emerging economies like China".

"The growing difficulty of finding oil" indicates a supply shortage - a decrease in supply (supply curve shifts leftwards)
"The rapid growth of emerging economies like China" results in an increase in demand (demand curve shifts rightwards)

And we know that although the change to the new equilibrium quantity of oil is indeterminate (may increase, decrease, or remain unchanged), the new equilibrium price of oil will definitely be higher.