The global recovery's soft underbelly: how sweet crude could rise to $200 per barrel, dooming the recovery.

• Author: Verleger, Philip K., Jr.
• Position: Industry overview

On July 27, 2008, the Washington Post published the first in a week-long series of articles on the high oil price. In it, author Steven Mufson included this ominous warning: "There is little prospect that drivers will ever again see gas prices retreat to the levels they enjoyed for much of the last generation." The title of the piece was "This Time, It's Different."

Mufson's article appeared on the front page of the Sunday Post. Many would have read the paper while sitting at Atlantic coast resorts like Virginia Beach. If they stopped to consider its content, they would probably have agreed. They might have even pondered forking out more than $4 per gallon to fill their gas tank when they headed east from sultry Washington, D.C., or down from Philadelphia. They might also have recalled that a year earlier they paid less than $3 per gallon. The few with good memories might even recall that nine years ago they paid less than a dollar per gallon when they filled up.

At the time, few questioned Mufson's opinions. Throughout the winter and spring of 2008, the popular press bombarded readers with warnings that oil supplies were growing short and that China's insatiable appetite would push prices higher and higher. Indeed, in April of that year, the New York Time's Jad Mouawad said as much: "Producers are struggling to pump as much as they can to quench the thirst not only of the developed world, but fast-growing developing nations like China and India, the two most populous countries. To many experts, the steadily rising price underscored longer-term fears about the future of a system that has supplied cheap oil for more than a century."

Six months after Mufson's piece was published and nine months after Mouawad's article appeared, the situation was very different. On Christmas Day 2008, the same Washington Post readers might have paid less than $1.50 per gallon for gasoline. Gasoline prices, which Mufson said "had little prospect" of retreating to levels enjoyed in the past, had returned to a range last seen at the turn of the century. In some parts of the country, prices fell back to early 1990 levels.

In the first nine months of 2009, prices rose again, but only because market participants were offered an enormous financial incentive to accumulate inventories. In fact, following the Lehman Brothers collapse, the world witnessed one of the all-time greatest increases in oil stocks.

So what happened? Why did oil prices surge to almost $150 per...