Diary

Falling Oil Prices: A good-news, bad-news story

Despite what Speaker Pelosi is telling us, the prices of oil and gas are set by the law of supply and demand – not by a handful of U.S. oil “speculators” who trade futures (not physical crude) of a world commodity trading on a world market.

We have been witness to that fundamental law as we watched crude prices soar under a rapidly-accelerating world demand that overwhelmed supplies. Now we are seeing demand coming down as the high prices force a change in consumption habits. The prices will ultimately level off at a point in which supply and demand are at equilibrium.

Declining oil/gas prices is the good news.

The bad news is that the lower prices will tend to instill a perception in the minds of consumers that the “crisis is over” and trigger a resumption of the old consumption habits that led us to four-dollar gas in the first place.

Oil prices came down for two reasons: (1) Declining demand precipitated by high prices. (2) George Bush’s leadership in taking the first step toward offshore drilling by lifting his Executive Order banning new drilling. That, combined with McCain’s forceful attacks against Obama’s energy non-plan has created some cracks in the Democrats’ stone wall and signs are emerging that they may ready to cave in and listen to the angry voices of 75% of the American people. If the oil speculators see a “threat” of increased supplies out in the future, then it will (and has) bring down prices today.

There is another danger here: any perception that this crisis is over could allow the Democrat-controlled, do-nothing Congress to shift the agenda away from solving this energy situation back to the more “important” national issues like proving Bush fired Federal attorneys for political purposes.

John McCain’s most powerful campaign weapon is his support of 75% of the American people on the issue of drilling. Obama and the Democrats would love for that debate to move off the number one position of voters’ list of most important issues because Obama is clearly on the wrong side of it and the Democrats know it.

The most profound danger, and one few want to talk about, is that the OPEC cartel controls world oil supplies. They have a long history of cutting output when supplies threaten to keep up with demand. OPEC doesn’t care if we pay $2 for gas or $6 as long as they can make Americans pay for building up their own military capabilities or funding terrorist organizations.

I don’t want to see gas run up to five dollars just to get McCain elected. Nor do I want to see this crisis manifest itself into a catastrophic calamity before the Democrats decide to show up for work and address an issue that poses a very serious threat to our economy, our very way of life, and our national security interests.

This crisis is far from over. It’s only beginning.