Submitted by EnergyTechStocks.com

Last Thursday noted oilman Boone Pickens told an American cable TV show that rising oil prices are not the result of speculation but rather the delicate balance that exists between demand and available supply. He said that when you have 87 million barrels of global demand and only 85 million barrels of available supply, prices have to rise to squeeze out demand.

Pickens is both right and wrong. Rapidly rising oil prices really are the result of speculation – but it’s speculation based firmly on analysis showing that all the signs point to increasing global demand further straining available supply, forcing prices to keep rising in order to continuously squeeze out demand.

So far, the smart money on Wall Street has been analyzing the situation in terms of oil. But when somebody takes a close look at what the International Energy Agency (IEA) just said, look for prices to rise even higher based on the problematic future of biofuel.

OPEC produces only about 31 million of those 85 million daily barrels. Last week the IEA said that 63% of non-OPEC “oil” growth this year will come from biofuel. Corn, palm and other agricultural commodities will contribute more than 1.5 million barrels a day, IEA said.

Let’s plug this into the analysis. Without biofuel, the world’s oil deficit wouldn’t be two million barrels a day; it would be 3.5 million barrels. If “speculation” warrants $120-plus oil under the present circumstances, imagine what Wall Street might deem an appropriate price without biofuel’s contribution.

Biofuel isn’t about to disappear, but whether it can maintain its current level is debatable. The food vs. fuel debate has politicians wanting to reduce the amount of corn grown to make fuel ethanol. The destruction of Asian rain forests has environmentalists wanting to reduce acreage cleared for palm oil to make biodiesel.

Ultimately biofuel will be produced primarily from waste sources, but probably not for another three to five years. Until then, a case can be made that another fundamental reason why speculators should anticipate the price of oil to keep going up is concern over whether biofuel can keep up its now significant contribution to the world’s available “oil” supply. “It is sobering to realize the amount of oil that would be needed to replace” biofuels, the IEA said.