PLATFORM:DRIVING FROM Dublin to Galway last weekend with a half-empty tank, we kept an eye on the price of petrol. It ranged from 120 cent to 130 cent for unleaded at the pumps.

We filled up at the 120 cent pump and congratulated ourselves for dealing at the bottom of the day's market. But we are concerned at the continuing spiralling costs given that we hope to drive through France and Spain shortly, a journey that will be a good deal more expensive than the same trip 12 months ago.

Oil has doubled in price since last year. And if the analysts at Goldman Sachs are to be believed, it will double again within the next two years. The Goldman research is based on the analysts' assessment of forecasted supply and demand - although they do suggest that, after hitting $200 a barrel, there will be a sharp downward move in demand. (While this seems self-evident, many of us thought there would be a sharp downward move in demand at $100.)

The forecast is receiving a lot of airtime principally because the firm predicted, in 2005, that oil prices would reach $105 a barrel, and that clearly came to pass so they are basking in the glory of a correct call. However, they obviously thought that they'd get out before the top themselves because, back in January of last year, they cut their exposure to energy investments by 50 per cent and precipitated a fall in oil prices at the time.

Presumably they've increased their exposure again in line with their latest forecast.

Although the current wisdom sides with Goldman, there may be respite soon if Lehman Brothers is right. Goldman's competitor predicts oil at $80 a barrel by next year on the basis that demand is beginning to fall and supply is increasing. Lehman also suggests that part of this year's particularly high demand levels is due to China stockpiling oil ahead of the Olympics.

However, Lehman previously forecast that prices would be back to $90 a barrel by now.

It is, of course, two opposing views that generate a market. And it is, perhaps, the market itself which is to blame for the upward march in prices.

Lehman's oil strategist, Michael Waldron, suggests that oil prices have been pushed to inflated levels because of financial flows into commodity index funds this year. This is because investors are using oil as a hedge against inflation and the falling dollar and, says Waldron, these financial flows have inflated prices by up to $30 a barrel. If the dollar continues to stabilise against other currencies, investors could begin to unwind some of their long oil/short dollar positions.

Other commodity markets have risen sharply too. Wheat, rice and soybeans have all doubled since last year. There is a sound supply and demand background to these increases, exacerbated by governments subsidising farmers to grow biofuel crops.

This has resulted in the double-whammy of oil not being any cheaper and food becoming more expensive. Traders are aware of the background to the products that they buy and sell on the futures markets, but their eyes are on the profits that can be made, not the future of mankind.

Investors have also used precious metals as a hedge against a falling dollar and falling equity markets, with gold, silver and copper all showing strong gains based, not only on their safe-haven qualities, but also on manufacturing demand.

Nevertheless, gold has retreated from its highs of more than $1,000 an ounce in March to about $870 an ounce last week and many traders are suggesting that it has topped out.

If the dollar has finally begun to stabilise and US Treasury secretary Henry Paulson is right and the worst of the credit crunch is behind us, then investors will ultimately take the profits they have made in trading commodities and switch to other assets again.

It is, of course, in the interests of the US to call the end of the crunch, as the authorities are desperate to prevent a deep recession taking hold.

Paulson, like any good trader, has hedged his bets by suggesting that there will be more "bumps on the road" before financial markets fully regain their equilibrium and currency traders stop making one-way bets on the dollar.