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Published: May 9 2008 19:50 | Last updated: May 9 2008 19:50

It is about 125 years since shipping oil in wooden barrels became obsolete. An oil price above $125 a barrel, however, and speculation that the price could hit $200 are reminders that we have become ever more dependent on the black stuff. Oil is unlikely to hit $200 and remain above it any time soon – but economies would suffer if it did.

The underlying reason for oil’s tenfold price rise in less than 10 years is that demand, not least from China and India, has risen rapidly while supply has not kept pace. That dynamic is different to the supply shocks of the 1970s, but because truck drivers and commuters cannot easily stop travelling, even a small deficit in supply can cause large moves in the oil price.

Tight supply and demand have made markets volatile. The spot price of oil for immediate delivery remains above the price for delivery in future months. This suggests particular fear about short-term supplies, while there is some evidence that speculation and worried buyers laying in stocks have pushed up prices. Spot prices could surge or plunge in the short-term, but seem unlikely to return to levels that are low and stable for some time.

The rising price of soybeans is putting the squeeze on biodiesel producers, leading some to close down operations.

The prices of soybeans and soybean oil have more than doubled in the last two years, according to the National Biodiesel Board.

For producers, that sharp uptick in price is forcing them to either close down or go to different sources of oil, such as animal fats or fry grease from restaurants.

Most biodiesel in the United States is made from soy. Soybean oil is around 60 cents a pound, while at the beginning of 2007 it was under 30 cents a pound.

Producers need 7.5 pounds to make one gallon of biodiesel, according to one industry estimate, so even with a federal subsidy, biodiesel manufacturers are seeing their profit shrunk or eliminated.

“The numbers are impossible,” said Fred Tennant, vice president of business development at PetroAlgae, which intends to make biodiesel from algae.

The situation is puzzling to people in the industry because the stock of soy is at an all-time high.

Mon Apr 28, 2008 5:05pm EDT

By Mark Weinraub

CHICAGO (Reuters) - New technologies can boost production of environment-friendly biofuels without threatening the world’s food supplies, industry leaders said at a trade conference on Monday.

The biofuels industry has been demonized by higher food prices, the biotech industry executives said in interviews on the sidelines of the fifth annual World Congress on Industrial Biotechnology and Bioprocessing.

“You have to look at what all the factors are that go into rising food prices,” said Steve Fabijanski, president and chief executive of Agrisoma Biosciences Inc, a Canadian company that engineers oilseeds with oil content that is tailored for biodiesel manufacturers.

Commodity costs are only one component of higher prices at the grocery store. Other factors, such as soaring crude oil prices and fertilizer costs that cut into farmers’ profits, also contribute.

Additionally, growing worldwide demand for meat could cause some food shortages if higher percentages of corn, wheat and soy are used to feed livestock.

Agrisoma’s crops, which are specifically tailored for biodiesel refiners, also produce an oil byproduct that can be used as animal feed, Fabijanski said.