While Congress is barking up the wrong tree — blaming speculators for high Oil prices — consider this simpler explanation for $100+ Crude Oil:
"The world is now at the end of a 20-year energy cycle. From the
mid-1980s to the middle of this decade, oil prices fell even as the
world economy grew. A barrel of crude cost $68 in 1983 (adjusted for
inflation) — and just $33 in 2003.
How did this happen? The high prices of the early 1980s gave producers
an incentive to take more oil out of the ground and also gave consumers
reason to use less of it. With supply growing quickly and demand
growing less quickly, prices plummeted.
The low prices of the 1990s reversed those incentives. Americans fell in love with Hummers and pickup trucks, and the Chinese and Indian booms were fueled by cheap energy. Oil supplies, meanwhile, weren’t growing so quickly. To top it off, the decline of the dollar since 2001 has reduced Americans’ purchasing power. Without that fall, a barrel of oil would cost less than $110 today, rather than $141, according to Stephen P. A. Brown at the Federal Reserve Bank of Dallas."
Oil will stay expensive until two things happen: the fundamentals of the supply and demand equation changes, and the scarcity psychology around crude oil shifts.
Bottom line: Oil prices will eventually fall as the global economy
cools off. But you can forget very cheap oil — under $30 or even $40
dollars a barrel — until we find a cheaper adequate replacement.
The Costanza Energy Policy: 25 Ways to Drive Oil to $150 (May 29, 2008)
Dispelling the Myths of Summer
NYT, July 2, 2008