Posted inUncategorized

Oil prices falling — will IQs follow?

Gasoline at $5, $6, $10 a gallon over the next two years would have been a severe mercy for the United States. It would have forced changes that will eventually be essential: more transit and rail passenger service, a return to our core cities, an urgency to raise fuel economy standards and develop alternatives. At last suburban and exurban living would be properly priced and costly, and the enterprise to retrofit savable suburbia to transit could begin. Foot-dragging on reducing greenhouse gases would have been similarly eliminated.

I don’t think it will go down that way. Oil prices have been dropping in recent days, as I long predicted they would. The decline is because the nation that uses a quarter of the world’s petroleum is seen heading into a nasty recession, which will cut world demand. So prices will drop, and soon we can expect some to start saying the worst is over and we can get back to driving SUVs and other self-destructive behavior.

(I think of a story in today’s Arizona Republic about Lake Powell "recovering," and the ‘Zonies thinking "happy days are here again!" even though their water crisis is unabated — although a State Secret).

Yet the fundamentals haven’t changed. World oil production has either reached peak or will do so in a few years. That means half of this one-time resource will have been extracted and burned off — and it was the easy half, the cheap half. So the remainder will be more costly, and getting it will be more geopolitically destabilizing. So oil will fall a little, then rise more the next time; retreat a bit again and resume its upward climb. The major oil companies and oil exporting nations (which control most of the oil) know this. Most Americans still don’t.

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Posted inUncategorized

Speculators and oil prices: an idea running on empty

Some Democrats and even Republicans would have us believe that speculators are to blame for higher gasoline prices. A bill has been introduced to close the so-called Enron loophole that allowed some energy trading on unregulated "dark" markets. That and other "dark market" loopholes should be closed. But the affect on gas prices will be minimal.

Americans have often railed against speculators — the Revolution and Civil War come to mind — and sometimes with good reason. Unfortunately, you can’t have capitalism without speculation. The key is sound regulation. But the idea that speculation is the major cause of higher oil prices is evidence of the magical thinking going on in much of America. It’s deep denial about the real reasons for more expensive oil.

Thus, a war against speculators will be useless at best and could do real harm, both by gumming up the efficient mechanisms of the market — of which speculators are an important part — and distracting us from the real tasks at hand.

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