There's been a lot of speculation over the years as to what could be the cause of these sightings- apart from the supernatural, of course. Not long after the 1900 debacle, a scientist in New Brunswick suggested that it might be St Elmo's Fire, an electrical field which can form around a rod-like object (like a mast), often before a violent lightening storm, during which nitrogen and oxygen cause a fluorescent glow. He hypothesized that this could explain why everyone describes the ship as being on fire. It's also been speculated that the ship is a fata morgana- a type of mirage which can form on the horizon when rays of light pass through alternate layers of warm and cold air (this is generally supposed to be the origin of the Flying Dutchmen legend). Although this wouldn't really explain the ship's fiery appearance. Still others go with a simpler explanation than either of these: thick fog and active imaginations can conjure up all manner of things at sea.
Of course, there are also those who are convinced that this is truly a paranormal occurrence and that there really is a flaming phantom ship sailing up and down the Northumberland Strait. As with most maritime regions, there have been many, many ship disasters there over the years so the believers have lots to choose from when speculating about the identity of the ghostly vessel. Lennie Gallant, a singer/songwriter from PEI, wrote a song about it in which he lists some of the most popular choices. Here he is, performing his song Tales of the Phantom Ship: