Oil Prices

This week I've been happy to see oil prices, and in turn, gasoline prices begin to descend. I don't pretend to be a global economist, but I think this is possible evidence that oil really was "bubbled" by speculation. We all know about supply and demand and how that affects prices, but if prices were high because of market forces and not speculation, what created those high prices? It's not like the 1970s where there were actual shortages. I didn't see any long lines at the pump or rationing going on. (Although we know that demand in countries with blossoming economies - think China and India - is expanding at a very high rate.)

There are a few other reasons why oil prices are normalizing. The first one makes perfect sense. Oil rigs in the Gulf of Mexico that were put out of production by Katrina are starting to come back online. The supply is increasing, so prices are going down and all the speculators are starting to think that betting on catastrophe was a bad idea.

The second reason for the prices drifting downward is more surprising. The Saudis have upped their output by about a million barrels per day. Forbes story. It turns out, in the new global economy (which no one really understands), the people who make profits from us need some place to invest their profits. They can't make money off of their money if our economy tanks.

I'm not sure whether I should be sad or glad about these new developments. The spectre of $200/barrel oil will force the hand of our energy-gluttonous nation. With energy prices through the roof, we'll have to come up with some better ways to power everything. With that threat now abating, at least in the short term, there will be less national outcry for energy independence.