Pressure is on OPEC to open its taps is getting ominous. We have indeed been on this familiar course earlier too. The IEA is beginning to assert, OPEC should raise output, so as to rein in the bull run and avoid derailing the fragile global economic recovery.

“It may not be a bad idea that the producers are ready to increase production and show their understanding that these high prices are not good for the global economy,” Birol added.

British Prime Minister David Cameron is also urging OPEC to boost production as oil prices peaked to a 27-month high. Voices from other quarters are also echoing the same sentiments. The onus is on the producers, OPEC in particular.

Yet, from a practical point of view, the output quotas are currently of academic interest only. OPEC is already producing at a considerable higher level. Quota compliance is touching new lows. OPEC output averaged 29.27 million barrels per day (bpd) in December, up 170,000 bpd from an estimated 29.1 million bpd in November. According to a new Platts survey, the 11 OPEC members bound by quotas pumped an average 26.84 million bpd, up 140,000 bpd from November's 26.7 million bpd, overshooting its output target of 24.845 million bpd by almost 2 million bpd. Several countries increased their output. Saudi output was also recorded at 8.35 million bpd, up from 8.22 million bpd in November. Quota compliance in December was touching a new low of 52.5 percent against 55.8 percent achieved in November.

“This significant output jump from OPEC, in the absence of a group decision to raise production, is good news for consumers,” said John Kingston, Platts’ global director of news.

“Iran, despite running into sanctions-related payments problems all over the world, held its production at previous levels; good news from Iraq continued, with a decent one-month rise in output; and Saudi output increased at a smart rate, just as world demand is doing,” added Kingston.

Output from Iraq is also on the up. Iraq boosted its output by about 57,000 bpd in December versus November's survey to produce 2.52 million bpd, thanks to raised production from the Rumaila and Zubair oil field in Basra. While the compliance of OPEC members, bound by output quotas, is slipping, according to some estimates Iraqi production is now touching 2.7 million bpd.

Interestingly, the markets are firming up despite inventories of crude and refined products staying comfortably above five-year averages. Saudi Arabia and other OPEC members hold five million barrels per day of spare capacity. Non-OPEC production is growing briskly and refiners have plenty of spare capacity. There is also a good balance between product demand and available crude oil inputs. Moreover, data from the US Energy Information Administration show that the global supply and demand balance for crude oil is much the same as it has been for the past 20 years. Granted, demand for oil has risen, but so too has supply. The latest EIA figures suggest there is no persistent shortage of oil.

In the meantime, sentiments about the global economy are not rosy and anxiety is on the rise. There remains a possibility that the Federal Reserve might alter the quantitative easing, much before anticipated. Questions are now being asked — what would be the shape of economy after this liquidity dries up?

Markets are worried and the signs of trouble are already there. A record 2.9 million properties in the US received foreclosure filings last year, Realty Trac reported. Now this is a 2 percent increase from 2009 and a 23 percent jump from 2008 foreclosure levels.

Is the current oil price rise really attributable to emerging market demand — especially from China — as some commentators claim? China’s economic growth is slowing, with expected growth for 2011 downgraded from 10.5 to 8.5 percent.

So what is driving the crude markets to three digits? A number of factors seem working behind the scene. Interestingly, most of these are much beyond OPEC’s control.

Commodities have rallied across the board and a large numbers of institutional investors are betting that the rally will continue through the next several years. Indeed, oil is the world’s biggest traded commodity. Barclays is estimating that $50 billion of institutional money will flow into commodity indexes this year (on top of the already record high $350 billion or more presently “invested”). The best available data suggest that close to half of this money is held in the form of long crude oil positions. Estimates of the impact of this money on crude prices range from a premium of 15 percent on the conservative side to as high as 50 percent.

Once big money starts flowing in, speculation also gets into play, making the markets beyond the fundamentals. Already, net long speculative positions in crude by hedge funds and other large financial speculators are reported to be at a record high, having increased by close to 5 percent during the last trading week of 2010.

The number of bets taken out by the traders rose by 4.6 percent in the week to Dec. 28, taking the total to its highest level since June 2006, according to figures from the US Commodity and Futures Trading Commission (CFTC).

Nymex remains the premier hub of energy trading, with billions of dollars in contracts for oil and gas passing through the exchange each day. “The oil price is being driven up by instantaneous, large-scale electronic trading. The market can be easily manipulated. The transparency level has gone right down -- black boxes control the market now,” said Wall Street oil trader Anthony Grisanti.

Hedge funds and big banks such as Goldman Sachs pile in and out in fractions of a second; speculation is at an all-time high and prices have never been so volatile, he said. According to Grisanti, the market is now full of “icebergs” — trades that appear small on the surface but turn out to be huge on close inspection. Prices are driven up by wild speculation and there appears to be no accountability, he added. “If you look back at 2007 when the exchange went electronic, shortly afterward crude oil traded at $140 a barrel,” he reminded.

Crude may decline to as low as $82 or $80 a barrel if hedge funds and other speculators decide to take profits by selling contracts, Petromatrix’s Managing Director Olivier Jakob said in a report.

Oil markets are complex. Too many variables are in play, making life still murkier. Blaming OPEC for all the ills may not be of real help. Pundits need to get beyond that, if the bull is to be reined in, one could underline with some sense of objectivity and indeed certainty.