My High and Low Level Analysis of the "Energy Crisis"

a friend recently asked me if I thought the "energy crisis" was a result of speculation. He said that airline executives were sending out letters to their frequent flyers begging them not to speculate on oil futures.

It's more complex than a speculative bubble, but at the same time the explanation is much more fundamental. To go up to 100,000 feet for a view... the normal action of the supply and demand curve has been upset because of limited supply. So, speculation will happen. But, the speculation is not a cause, it is a result. At the 10,000 foot level, speculation does raise the price, but only because the price is already on the rise.

In my thinking, we are at a very steep place in the supply / demand curve. Even more steep than a hockey stick shape. SO, any little bit we do to increase supply or to reduce demand will significantly reduce the price. That's where we are on the curve! When the price goes down, speculation will become non-profitable and the price will go down more.

The liberals would have us push on the demand curve. We should all cram into clown cars and keep the thermostat at Siberian temperatures. We should let the government set our thermostats and control our driving because they know best. (bullshit)

The realists (uh hem.. like me) know that bigger is better. Sure, let's put in those solar and wind plants and let's squeeze algea for whatever it gives. But, let's also drill anywhere there is oil we can control. BECAUSE, even the start of drilling will reduce the speculation portion of the pricing. Just ANNOUNCING THE INTENT to dill would substantially reduce speculation.

I think it's pretty clear. It's just the roar of people wanting to use the situation to gain control or profits that makes it difficult.