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High Energy Prices Reflect The Law Of Supply And Demand

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August 4, 2006

Posted by neillevine

About This Editor: I am a writer. Have been writing for other sites, but expect to do most of my future work HERE! My expertise extends from the esoteric such as burning hydrogen to the unpredictability of the stock market and my writing makes me a jack of all trades and exasperated master of none. I have had some influence over national wildfire and water policy and there are hints of a change in energy policy, BUT as Samuel Goldwyn once said, "A verbal promise is not worth the paper it is written on."

         

The quoted price of a barrel of crude oil on the New York Commodity Exchange continues to be rather high, around seventy-five dollars a barrel currently, apparently because investors do not believe Washington politicians are meaningfully increasing energy supplies.

A few comparatively small things are being done. There will be more ethanol burned by automobiles supplied from domestic production and even with imports from Brazil filling gas tanks. Brazil has pretty much converted its entire automotive fleet to this alternative source of energy and domestically this will begin to eventually replace some significant amounts of gasoline. Once large enough supplies become available, this will be a big help.

There will also be some more drilling and theoretically important discoveries of crude, possibly in the north of Alaska, possibly in the Gulf of Mexico, maybe somewhere off the coast of Florida. This should increase energy supplies even more though the amount of oil produced in this country has been slowly declining, while at the same time being true that world production has increased, reducing OPEC’s shares and their control.

In addition, there is even going to be more use of wind power in Vail, Colorado and elsewhere. Reducing the need for more polluting power sources such as the coal many American utilities have contracted for or the nuclear fuel France logged on to.

But investors on the energy futures commodity exchanges are acting as if this is not important. That what is being done is not significantly increasing supplies for the long term. So the price of crude is going up on a hypothetical long term shortage and other problems.

This is not good. It does not reflect well on our government. For the price of energy to stabilize or even drop in a meaningful way investors have to act like they believe new sources of energy are going to increase to the point where supply outstrips demand. A simple, but time tested law of that dismal science known as economics.