Financial markets are not always rational or efficient.Often people go on a speculative binge ignoring reality. Speculators will buy anything, not because of its intrinsic value, but because they are confident of selling it some time later for a profit. This is the 'greater fool' theory, that is although one may be a fool for buying something, it is OK as long as somebody else is willing to buy it at a higher price.
One of the earliest and most famous bubbles was the Dutch tulip market of the 1630's. The tulip was introduced into Holland in the middle of the 16th century from Constantinople. It quickly became a status symbol. Until the year 1634 the tulip constantly increased in reputation, until it was deemed a proof of bad taste in any man of fortune to be without a collection of them.
After 1630 people started speculating in tulips. Prices took off and the market developed a life of its own. people bought tulips at absurd prices only because there were others who were willing to pay those prices. For instance, a single bulb was exchanged for twelve acres of land. Another was sold for a carriage, two horses plus some cash.
This tulipmania continued till 1636 when enough Dutchmen started wondering if the tulip bulb was worth it after all, and people decided to get out. As this sentiment spread prices started falling and they fell till prices reached a realistic value for what was after all, just a flower.
The price of oil today is also at unrealistic levels. It is up almost five times in the last five years, although consumption has increased only marginally. Most traders are buying it not because they intend to take delivery, but because they are certain of selling it later for a profit. As and when market sentiment changes, prices will certainly come down to realistic levels.