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Wednesday, July 02, 2008

Why committing now to begin drilling ASAP will indeed affect the oil price now

I wrote last week, without bothering to do any online research or include any links, about why under basic economic principles, what we do now (or choose not to do now) affects present expectations about the future supply of oil, and why those expectations do indeed affect the current price of oil.

Now Martin Feldstein — a Harvard economics professor who was chairman of the Council of Economic Advisers under President Reagan — has an essay in the Wall Street Journal making exactly the same points in commendably simple language.

This really is basic economics. It's intuitive. It's entirely within the potential grasp of the average voter who's even moderately interested in testing the validity of the Dems' insistence that "we can't drill our way out of this."

How much of an impact on today's prices we can have by changing the market's expectations about supply and demand in the future — well, that is in large part a question of how definitive and credible the changes are that we make today. Half-measures aren't going to make very significant changes in those expectations. But bold ones will.

Posted by Beldar at 04:15 AM in 2008 Election, Current Affairs, Energy, Politics (2008) | Permalink


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(1) chris made the following comment | Jul 2, 2008 6:08:59 PM | Permalink

A lot of the evil "speculators" are simply people that took Reid, Pelosi, Gore, et al at their word. They observed trends in the courts blocking new energy supplies and laughed at the hysteria driven by quasi-scientific fantasies about what-causes-the-weather-to-change foisted upon the public. No hydro, no coal, no nukes, no petroleum. Burn the food crops, rely on wind (.1% of total electrical grid today!), say Green endlessly, drive a Prius.

I guess I am an evil speculator because I bought lots and lots of oil and gas stocks on the grand "speculation" that US consumers would still use energy and drive cars at levels near those of 2006. In hindsight, it looks like a sure thing. If it was, why were you not buying?

BTW, it is time to start selling............

(2) DRJ made the following comment | Jul 3, 2008 12:49:27 PM | Permalink

We desperately need more oil production while the market experiments with economical sources of renewable energy. This Abilene Reporter News article about T. Boone Pickens' wind turbine venture is an example of a market-based experiment in renewable energy. Hopefully the US will allow more oil production that, coupled with renewable energy like this, will help us solve our energy problems.

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