WASHINGTON

CONTRARY TO POPULAR myth, the price of oil is not magically determined by supply and demand. The price of oil is manipulated by OPEC (the Organization of Petroleum Exporting Countries) and by speculators.

Other factors, including the war in Iraq and new demand from India and China, as well as momentum, have contributed to the price of oil rising so far this year more than 40 percent, to $143 barrel.

Without the war in Iraq, OPEC restrictions on supply and speculation, the price of oil would be about $50 a barrel, or less. The astronomical price of oil is contributing to a worldwide recession and adding to the food crisis by increasing the cost of basic grains.

The International Energy Agency estimates that global demand will rise to 86.8 million barrels a day this year, up from 85.8 million barrels last year, due largely to booming demand from developing nations such as India and China. This represents an increase of just over one percent, not a dramatic increase. Certainly not an increase that would justify a price increase of nearly 100 percent in the last year.

The increased demand from India and China is relatively small compared with the other factors. According to the U.S. Department of Energy, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels a year or about 2.5 million barrels a day.

This increase corresponds to the U.S. decrease in oil consumption.

Demand for oil in United States fell about 3 percent in the first three months of this year. As prices rise the demand will fall. Similarly, the supply of oil should increase as prices rise, but OPEC has not allowed this to happen.

At the same time, speculation in oil futures has increased. This is a relatively recent phenomenon. Futures contracts for oil, the Nymex only began trading in 1981. Trading in commodity futures let speculators buy a crude-oil futures contract by having to pay only a small portion (about 6 percent) of the value of the contract. For example, at a price of $130 a barrel, this means that a futures trader only has to put up only about $8 for every barrel, while borrowing the other $122. This ability to leverage commodity futures purchases by up to 16 to 1 helps drive prices to wildly unrealistic levels. Added to this is the momentum of the rise in oil prices—it seems to keep going up and up with new speculation adding fuel to the fire.

I propose that Congress and foreign governments end OPEC’s cartel and prohibit speculators from buying and selling oil.

Several Connecticut oil dealers are joining forces with U.S. Rep. John Larson (D.-Conn.) to support federal legislation that would curb commodities speculation. Larson’s proposal would forbid people from speculating on oil unless they are an “end user” of the product.

This would let United Airlines, for example, buy future oil contracts, but would prohibit pension funds and billionaires not in the oil business from speculating in oil. Speculators have stockpiled the equivalent of more than one billion barrels of oil, more than any single government, driving the price of oil to record levels.

German leaders have proposed a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds. India has already suspended futures trading of oil.

Uwe Beckmeyer, transport chief for Germany’s Social Democrats, said his party would call for joint measures by the G8 powers to prohibit leveraged trading on energy contracts. Mr. Beckmeyer said the last 25 percent rise in the price of oil had nothing to do with underlying supply and demand. “It’s pure speculation,” he said.

Washington overcame a significant obstacle recently in its attempt to allow lawsuits against OPEC for behaving like an oil cartel and keeping the price of petroleum artificially high. I participated in an antitrust case against OPEC 30 years ago — the U.S. courts refused to let OPEC be sued in American courts unless Congress expressly allowed it. Now Congress has done so. The House overwhelmingly approved legislation to bring a lawsuit against OPEC nations for price fixing. President Bush is opposed to the legislation because he believes that it will trigger retaliatory measures by OPEC member countries such as Saudi Arabia against American business interests. While the law still has to be passed by the Senate, the size of the majority in the House — 324 votes in favor versus 84 against — is sufficient to override a Bush veto.

We don’t have to sue OPEC to get results. The United States and European nations can put pressure on OPEC nations by withholding or revoking World Trade Organization memberships, or by restricting trade in other products, such as automobiles, oil equipment and aircraft.

African and Asian nations, which are harmed most by OPEC’s price gouging, can join the chorus as well.

Breaking up OPEC and reducing speculation are only short-term answers.

In the long run, the United States must be self-sufficient in energy by using solar, wind and other alternative sources of energy.

Germany, not a country known for its sunny climate, has more solar panels in place than the United States. Brazil has become self-sufficient in energy and the United States can do the same.

Joel D. Joseph is chairman of the Made in the USA Foundation ( joeldjoseph@gmail.com).