I dispute that oil and gas prices will follow the same pattern as they have historically (as illustrated in the graph) for the following reasons:

The dramatic increase in demand from China, India, and other third-world countries is a change from the previous demand curve.

The dramatic decrease in supply, despite the bold pronouncements about how technology will produce gold from straw, is real and irreversible.

While additional supplies of petroleum will be available from oil shale deposits, the price will probably be triple-digit on the barrel.

As the demand for oil increases and the supply of oil decreases, the prices will continue to rise in defiance of the historical curve. The tax revenue will probably increase as well, unless the tax structure is changed to allow for less taxes on oil and gas producers already awash in windfall profits.

The oil situation seems to be producing conflict between the professionals who understand it and the economists who think that, if we clap our hands really hard, Tinkerbell will live. Going with faith over fact, at least in this case, is unlikely to lead to positive outcomes.
Charles McCoy | 08.02.05 - 8:47 am | #