SPECULATORS are so bullish about crude oil at the moment that almost any excuse, any hint of uncertainty, gives a pretext for another push. This week it was the death of King Fahd bin Abdul Aziz Al Saud. In reality, poor King Fahd had a bad stroke in 1996. Since then, the world’s biggest oil exporter has been led by Crown Prince Abdullah, who was quickly made the new King. But no matter.

Long-term issues may not affect the supply of oil coming out of the ground now but that is not the way traders think. The Middle East is more volatile than usual. Anything can happen. And the West needs Middle East oil.

Crude traded between $10 and $15 a barrel in 1998. Over most of the next four years Brent crude fetched anything from $20 to $30, less than half this week’s record.

These price signals did not stimulate new development fast enough to cope easily with the economic recovery of the past two years, let alone China’s rapid emergence as the second-biggest energy user.

The bull market in oil over the past two years has been punctuated with speculative corrections. In the autumn of 2004, for instance, Brent fell by 30 per cent before climbing to new heights by March. Prices could soon reverse again if speculative interest suddenly turned elsewhere but high demand, lack of spare capacity and Middle East jitters leave the short-term trend upwards.

High oil prices are bad for the world economy. One formula suggests that $10 on the price of a barrel soon cuts 0.6 per cent from world output. But there are, as yet, no signs that the oil price spiral will be resolved by recession. In Britain, higher costs are balanced by revenues to the North Sea oil and gas sector, which is still just about a net exporter.

For UK investors, high oil prices may even seem a boon. The London market hosts two of the world’s top five integrated oil companies: the £130 billion BP and the newly consolidated Royal Dutch Shell, which has a similar market value. Together with BG Group, which is valued at £17 billion, they make up a fifth of the value of the FTSE 100 index.

Oil shares do not track oil prices closely. A specialist exploration and production company such as BG, part of the British Gas diaspora, is affected by its own triumphs and disasters. Oil majors are influenced by the state of the world economy and stock markets. These dominated in the boom years of 2000 and 2001. Over 10 years, however, oil prices seem to have exerted the strongest influence. Oil shares often lag behind oil prices a little (far less than profit) but follow the ups, downs and turning points.

Shares in Exxon Mobil, the world’s biggest oil company, trailed the oil price to new highs in the past few weeks. So did Total, the French national champion, and BG.

The exceptions are BP and Shell. Adjusting for the reconstruction, shares in Royal Dutch Shell and BP are below their 2000 to 2001 highs. They have also lagged judiciously behind oil this summer. Shell frittered away years of credibility by getting itself into a corporate mess for overstating hydrocarbon reserves, a sensitive issue when you are a bit short of them. BP’s reputation for good management suffered with two refinery fires in Texas, where such bad lapses are most sure to be noticed.

The merger of Shell and Royal Dutch then played a part. By listing the whole company in London, Shell more than doubled its weight in the index, obliging funds that follow the crowd to buy more. Quite a few decided to switch from BP, to avoid excessive concentration in the sector. These artificial effects seem to have worked themselves out by early July. Since then, Shell has fallen back 8 per cent, while BP has edged up.

Only the disciplined should consider buying oil shares when oil prices are at record highs. At least BP and Shell look the least vulnerable, and Shell yields 3.5 per cent. Even takeovers are rare at high ratings but China is so desperate for oil that it could target BG, Britain being one of the few countries that would not care.