Oil price warning

You may have noticed that the price of gas has dropped recently. So much for "peak oil," you may think. So much for all those liberal Chicken Littles who said that the end of the fossil-fuel world was near. So much for light rail, high-speed rail, solar power, wind power, and all that stuff they said we need, right?

Wrong. Richard Rahn of the Washington Times explains why oil prices are going back up:

About 65 percent of the demand for global oil can be supplied at a price of $35 per barrel. Another 20 percent of demand can be supplied at a price of $35 to $60 per barrel, but the remaining 15 percent will only be supplied over the long run at prices of $60 to perhaps $130 per barrel. Oil, like all commodities, is priced at the margin, which means the price of all oil demanded by the market is equal to the price that producers can get for the last barrel of oil they sell.

It took an absolute collapse in the entire global economy just to bring oil prices down to a reasonable level; no force on Earth is bringing them further down than they are now (unless we invent cold fusion the day after tomorrow). As soon as demand goes back up even a little, we'll be back out of the $50 zone and back to the $90 zone or even the $120 zone. The economy won't even have to completely recover for this to happen.

One saving grace in the Great Depression was that it came right in the middle of the beginning of the Age of Oil - cheap oil was just gushing right up out of the ground, a fact that we took advantage of in WW2 and for 25 years of cheap driving and investing after the big war. No such new cheap fuel source is emerging today. Coal and natural gas are stopgaps. Solar and wind, the big replacements for oil, require a massive amount of new investment just to provide electricity at prices we can afford to pay; they will save us from the Stone Age but they will not provide any bonanza.

In other words, the things liberals wanted to do during the Great Oil Spike still make a whole lot of sense. We need to build a lot more trains and a national power grid. We are going to need to give big incentives for renewable energy. Because as soon as our economy beats the 10-count, oil prices are ready with a mean left hook.