Though gas prices have moderated, who would have ever thought we’d breathe a sigh of relief at the prospect of paying four bucks a gallon? As gas and oil prices rose to new and dizzying heights this past spring, pundits and politicians alike began looking for a boogeyman.

However, the problem might not be speculation, as some have suggested. Based on publicly available information as well as my conversations with energy investment managers, including some who are former oil traders, the problem might just boil down to a tight balance between lackluster supply growth and swelling demand.

“Our best judgment is that this surge in prices has been driven predominantly by strong growth in underlying demand and tight supply conditions in global oil markets,” said Ben Bernanke, chairman of the Federal Reserve, when he gave his semiannual monetary policy report to Congress on July 15.

On the supply side, we are witnessing the result of decades of under-investment in exploration and development of new crude oil reserves at a time when output is declining in many of the bigger, older oil fields. Decline rates are natural; oil fields are finite after all. We have to discover a lot of new oil just to keep up with present demand, much less new demand from developing countries.

There are both geophysical and geopolitical challenges to finding new oil. The reality is that, generally speaking, significant sources of oil are either in areas we don’t like – or they don’t like us.

We’re all familiar with the environmental risk of drilling offshore or in the Arctic National Wildlife Refuge. According to news accounts, energy giant ConocoPhillips is now exploring oil fields 200 miles north of the Arctic Circle, where they would have to drill through miles of ice and build a pipeline hundreds of miles long.

The geopolitical realities are just as challenging. Northern Iraq reportedly has huge reserves, but the political instability of that area poses a significant threat. Nigeria is another example of where an unstable government makes investment risky.

On the demand side, it is true that slowing economies in developed countries are consuming less oil; however, developing economies such as Brazil, India and China haven’t slowed nearly as much.

More and more Americans are leaving their cars parked. According to the Transportation Department, we drove 3.7 percent fewer miles this May than in 2007. Gas consumption is now falling to the point that it’s impacting federal fuel tax income, putting many highway and mass transit projects in jeopardy. Less demand is easing the pain at the pump.

A report released in July by the Interagency Task Force on Commodity Markets, Interim Report on Crude Oil, concluded that current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors. “The Task Force’s preliminary analysis does not support the proposition that speculative activity has systematically driven changes in oil prices,” the report stated.

What does this mean for investors, and even the general public? The energy sector saw significant growth the past year, but began to fall off in May, though crude prices continued to rise. Energy company stocks do not necessarily have the same returns as the underlying energy commodities. In addition to exposure to crude oil and natural gas prices, energy companies also have exposure to stock market risk.

Many institutions maintain a modest exposure to commodities futures because it represents a sound investment as part of a total allocation to “real assets,” such as infrastructure and real estate. Studies show that commodities have positive long-term diversification benefits on portfolios of stocks and bonds. Individual investors, however, might find it problematic to get direct exposure to the commodity futures market. If individuals still wish to pursue this path, they should consult their financial advisor.

The other thing to acknowledge is that our world is in the midst of a long-term change. In addition to motherhood and apple pie, American society was built on cheap oil. The days of cheap oil likely are numbered.

Four years ago, Grammy-winning songwriter Bruce Hornsby released a hit single, “Gonna be Some Changes Made.” “Can’t keep on doing what I’ve been doing these days,” Hornsby sang. Despite any short-term relief, gas prices are likely to continue to rise long-term. If they do, all of us could be looking to make some changes.

Mark Paris, CFA, is a senior research analyst for Russell Investments. This article is part of a series of monthly columns by Russell associates.