With oil prices breaking their all time highs, investors and market analysis experts are analyzing the causes behind this phenomenon. They have discovered one helluva vicious cycle.

Rising oil prices pressures stocks, and falling stocks push investors into oil. Under normal circumstances that dynamic would spell a bubble, but unlike tech stocks, the market–through necessity–is much more willing to pay, leaving prices at unreasonable highs. That is until demand destruction sets in, but it’s difficult to see that really take hold in the short- or mid-term.

Also at blame for these record prices is the lack of a strong US dollar. Oil sold to foreign investors under the dollar is a lot cheaper, which drives up the demand for the already very limited resource.

The current issue of Barron’s includes an interesting interview with “Mr. Crude.” Arjun N. Murti, the leading energy analyst at Goldman Sachs, has a distinguished record. He was dead on with a prediction of a spike in oil prices. He made his call in 2004 when oil was $40/barrel. What does he see now?

Murti sees energy in the later stages of a “super spike,” in which prices rise to a point where demand drops off. In a note last month, he wrote that “the possibility of $150-to-$200-per-barrel oil seems increasingly likely over the next six to 24 months.”

His rationale is easy to understand. Supply is constrained. Demand is firm and rising. Oil prices in the forecast range would imply gasoline prices of $5.75/ gallon. At this point, one could expect a further reduction in demand.

Consumers and businesses alike need to ask what this possibility would mean for them.

In particular, businesses with exposure to higher fuel prices need to act quickly. Despite the trend, this problem has taken many by surprise. Some astute business leaders seem to be in denial. Normally, one would expect businesses to anticipate and to deal with important risks. Most have not yet done so.

There are some very good answers to the problem, including those that we offer.

It is certainly time to plan, and probably time to act.

Tom Kloza of Speaking of Oil sees that April price increases in gasoline will give way to May price decreases.

Here is his reasoning:

There are generally two high tides each year for crude oil, and for gasoline. The most predictable high tide comes in April and early May; the less reliable second rise comes during hurricane season. Ebb tides can be pretty severe – crude oil might give up 15-20% of value in any given year, which these days would translate into a $17-$24 bbl downside move.

- Market tops are often signaled by rhetorical extremes. We are certainly seeing that now, with oil likely to be the lead story for each network newscast and many print publications. I’ve been asked to do more radio this week than Paul Harvey did in his prime, and if I answered every print inquiry, I’d be in more newspapers than the Sudoku. I paused before writing this paragraph to google-search the term “oil price” in the news filter, and found 104,000 entries. There were only 5347 results for Paris Hilton and much more tragically, just 17,712 hits for Darfur.

- The sentiment is almost entirely bullish. A survey group that measures the outlook among commodity professionals finds that more than 90% of those in that group describe themselves as “bullish”. When 90% of investors or speculators are bullish about any given asset, it’s generally a tip-off that all of the buyers have already staked their claim, and the market is ripe for a turn.

- High oil prices have consequences. Oil prices have advanced by $68 bbl since late January 2007. That translates into increases worldwide of at least $1.62 gal for everything from gasoline to asphalt. Demand destruction will occur at these levels, not just in the U.S. but in developing countries as well.

On the other hand, this could be the “Black Swan.”

Experts are predicting prices from your worst nightmare:

William Patalon, III on his Monday Morning blog, sees four factors fueling oil prices:

* Obfuscation by OPEC: Members of the Organization of the Petroleum Exporting Countries have been misrepresenting their reserve capabilities for years. The key players have reported no new discoveries for decades.
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Terrorism Threats: The odds that a terrorist act will interrupt oil supplies – in the near term or the long term – are higher than most security experts would ever publicly confirm, Fitz-Gerald says. And this is especially problematic because of the double-whammy effect: Damage to a major pipeline or a strategic refinery could crimp supplies just as demand is continuing to escalate.

* The Dollar Doldrums: Oil is priced in dollars. And the dollar is in the dumper. Indeed, rising inflation and falling interest rates have put the greenback into a steep downward spiral. And if prices keep rising, and if Federal Reserve policymakers keep cutting short-term interest rates, the dollar will continue to lose altitude against other key global currencies. OPEC members will counter the greenback decline by marking up the price of crude, causing prices to increase still more in dollar-denominated terms.

* Cruising Goes Global: As an increasing number of households in China, India and other advancing overseas economies join the world’s middle class, they’ll start making such basic purchases as electronic goods, houses – and automobiles. The fact that China’s oil imports jumped 18% in one month is evidence enough that this is happening. And the fact that leading India automaker Tata Motors Ltd (TTM) has unveiled a $2,500 car, the Nano, underscores that international carmakers are looking to recruit a whole new group of motorists. The fallout: For U.S. refiners, oil will first get lots more expensive, and then supplies will start to dry up as countries opt to halt exports and keep the precious black gold for themselves.

This time of year inventories of crude oil usually build up since refineries are shutting down for seasonal maintenance and processing less crude.

Imagine the surprise when the EIA reported last week that crude supplies fell by 5.3 million barrels when analysts were expecting an increase of 300,000 barrels.

Analysts now explain this decline as a sharp drop in imports.

Oil futures rose in Asia on this news.