The oil price is frisky and everyone is talking about $100 per barrel or even more next year. As the price of Brent Crude topped $90 per barrel on Thursday, JP Morgan Chase on Friday joined the swelling ranks of investment banks predicting triple digit oil prices in 2011. Morgan sees $120 by the end of 2012 with the market lifted by the emerging economies of Asia, higher than Goldman Sachs prediction of $110 per barrel. The nominal price predicted is a nonsense, as everyone knows, subject to the vagaries of currencies, the day-to-day casino behaviour of hedge fund managers as they roll over their bets in the futures market, and the weather.

There is always herd behaviour in the oil market and you would have to be naive to fail to notice that oil traders in London have been trudging to work on pavements crusty with snow and ice these past few days. The airport in Geneva, the favoured new home of the oily set and theirhedge fund clients, was shut by blizzards on Wednesday. There is nothing like a good freeze to excite the Brent market but what everyone desperately needs to know is whether demand for crude over the next two years will rise faster than OPEC's ability or willingness to bring on extra barrels.

My suspicion is that the market is getting itself in a frenzy of excitement about economic recovery and about Chinese demand, which is certainly strong, rising 8 per cent this year. The continuing expectation by oil traders of higher demand can be seen in the oil price contango on the Nymex futures exchange.

This phenomenon, where the prompt price for oil for delivery this month is lower than for future months, encourages a self-fulfilling betting trend. Excess oil in storage keeps prices for immediate delivery low and investors buy oil, store it for delivery in three months when the price is higher, take an instant profit and roll over the bet for another three months and so on. That's fine until the price begins to reach levels that don't make fundamental sense.

Look at Europe's fragile and anaemic economic recovery, and look at America's jobless recovery and then look at OPEC's spare capacity. The cartel has between 5 and 6 million barrels per day of unused production capacity, most of it held by Saudi Arabia. The International Energy Agency reckons global oil demand will rise from 87.3 million bpd in 2010 to 88.5 million bpd in 2011.

Of course, the OPEC cartel loves this price, which supports their ramshackle one trick pony economies and feeds the lifestyles of their parasitic elites. But they are not good at cutting output and they now have to contend with Iraq, which remains out of the quota system and where foreign multinationals are now investing heavily. Iraq is just beginning to tap its resource but it could bring an extra half million barrels per day on to the market by the end of next year. Meanwhile, non-OPEC supplies are rising in the former Soviet Union and the call on OPEC supplies doesn't change in the IEA's calculations for next year.

The peak oil crowd love these big oil price numbers of $200 oil and they are right in the long run, but before the long run there is the short-term crisis. This economic recovery is too fragile for $120 oil. The Saudis know it and even if they like the idea of three digit crude prices, what they truly fear is the $40 crude price of another recession.