Supply increased, inventories swelled, and prices dropped—to $48 a barrel a month or so ago. Yet this week the price of West Texas Intermediate (WTI), a benchmark crude, was at a new record, flirting with $60. Why, then, have prices shot up in the past few weeks? There is no shortage of crude oil: the market seems well supplied for now. Look ahead a few years, say optimists, and there is little cause to worry. A provocative new report by Cambridge Energy Research Associates, a consulting firm, even says that there could be a glut. Having carried out a field-by-field assessment of investment already paid for and coming online, its boffins conclude that global production capacity may rise by 16m barrels per day, from roughly 85m now, by 2010.

Today's prices are probably explained by a combination of the cartel's greed, bottlenecks in the refining system and red-hot demand. OPEC's members are all pumping oil as fast as they can. Only Saudi Arabia has any spare capacity left. This leaves the world market with no safety net, making oil traders jittery and causing them to demand a risk premium.

At the cartel's most recent meeting, in Vienna last week, ministers tried to soothe such fears. They raised output quotas by 500,000 barrels per day immediately and promised a further, similar increase if prices remained above recent levels. Far from reassuring markets, this created more worries. The quota rise was seen, correctly, as a mere public-relations exercise: because members were already producing more than they had previously agreed, it added no new oil to the market.

Indeed, OPEC's promise of a second increase in quotas if prices rise further has been taken to mean that the cartel now accepts a new upper bound for the target price of its basket of heavy crudes (which is a little lower than that of WTI). This is not the $28 or so discussed months ago, but $50-plus. The cartel may thus be testing consumers' acceptance of high prices.

A second factor behind the recent price hikes is bottlenecks in the global refining system. Those big inventories encouraged by the cartel have been processed by refiners, who have been enjoying high profit margins. There are now large stocks of refined products in OECD countries. However, the existence of these stocks is not dragging crude prices down. The reason is that the types of crude available from OPEC members tend to be heavy, sulphurous grades that are complicated or costly to process. Meanwhile, the global market is demanding ever more clean diesel fuels and low-sulphur petrol.

Nevertheless, talk that refining bottlenecks will keep pushing oil prices higher seems overdone. In time, market forces will spur refiners to make the necessary investments to upgrade their equipment. Analysts at Goldman Sachs suspect that many refiners used their spring maintenance cycle to upgrade their equipment in order to handle heavier, dirtier crudes. Refiners will have done well to use their margins while they could: eyeing those profits, Saudi Arabia has trimmed the discount, relative to WTI, at which it sells its crude oil to refiners.

In the end, how long today's rally lasts could depend on the final factor pushing up prices: demand. Chinese oil consumption grew by perhaps 15% last year. Although that rate has not been matched in 2005, the world as a whole has continued to guzzle oil.

At some point, of course, high prices will clobber demand and encourage efficiency, fuel switching and so on. Will that happen soon? Probably not. In a new report, Douglas Terreson of Morgan Stanley estimates that the world economy would need to see sustained prices of $85 a barrel before the current robust trend in oil consumption is derailed—and with it, the world economy. And despite the recent run-up, $85 is still far off.