Monday, August 22, 2005

Interesting theory (and good news) on oil prices

Good news? What, you just saved a bunch of money on your car insurance by switching to Geico?

No, there may be an upcoming silver lining on all this high gas prices ordeal. Steve Chapman's column is short, encouraging, and worth reading. Excerpt:
The going rate has been pushed up in the last couple of years by rising fuel consumption. But Michael Lynch, president of Strategic Energy and Economic Research Inc., says global demand has fallen short of predictions this year. Not only that, but crude oil inventories have been expanding in the U.S., which should help push prices down.

It turns out the law of supply and demand has not been repealed: When the price of oil rises, people consume less than they would otherwise. The longer oil remains expensive, the more people will look for ways to conserve it. Already, car buyers are flocking to gas-stingy hybrids, which were once regarded as the equivalent of living in a yurt.

Lynch expects prices to drop to $40 a barrel by the end of the year, if not sooner. He's not alone: The Russian government has drafted its 2006 budget assuming that's all it will get for its oil. That would bring gas prices down in the range of $2 a gallon.
Emphasis mine. While $2 a gallon as the national average still sucks, I think we all begrudgingly acknowledge that the days of cheap gas are long gone. Plus, $2 per gallon is much, much better than we have right now. Four year ago, I shrieked when gas hit $1.75, and who wouldn't give Hillary Clinton's left wing to return to those prices again?

Granted, all of this is just theory, but it sounds like it has valid logical points. We'll see soon enough.