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Tuesday, June 27, 2006

Conspiracy To Reduce Gas Costs

Larry Kudlow predicts oil prices to drop in the next 6 months to year to about $40 to $50 per barrel. No, conspiracy fools, it has nothing to do with Bush-Saudi-Halliburton-Texas oilmen playing us for unfair profits (not sure what those are exactly). It just has to do with that boring old theory of supply and demand.

Writes Kudlow:

The economic principles at work here are very simple: Markets work. Supply and demand works. Higher prices are gradually slowing consumption. At the same time, those high prices continue to stimulate outsized profits and investment returns. So capital is pouring into all the energy sectors, providing a strong foundation for new energy production. Chevron, for example, is reinvesting virtually all its profits in new oil-and-gas exploration and drilling. The drilling industry, meanwhile, has recovered from last year’s Hurricane Katrina shock and is once again producing near peak capacity.

There’s even good news from Washington on the energy front. The House Resources Committee, chaired by California Republican Richard Pombo, has just delivered the Deep Ocean Energy Resources Act, which will give coastal states the authority to drill 100 miles or more offshore. This will allow for exploration and production in the deep seas and on the Outer Continental Shelf (OCS), where kajillions in oil-and-gas reserves are waiting to be siphoned. It also will provide the coastal states with significant oil and gas royalties. Democratic House Minority Leader Nancy Pelosi opposes this, but the bill has strong bipartisan support.

If you want to believe in conspiracies, think of it is a plot between consumers, suppliers and Adam Smith. They work that magic every time.

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