As I watched the signing ceremony for another energy bill today, I thought, why bother? The push for more ethanol only seems to drive up the price of corn, displace other crops, and lead to food inflation for consumers.
Energy independence? Please. We import roughly half the oil we use each day. That's a pretty big hurdle to independence.
But then I read John Cassidy's article in Portfolio. He thinks oil prices are headed back to $50. Sound crazy? I thought so. But then I read on. He points out that yes, the easy oil is gone, but in the end, market forces HAVE to work.
High prices have been in place long enough to motivate integrated oil companies to reinvest in exploration and production. Consumers have experienced pain at the pump long enough to take a hard look at more fuel efficient cars.
The government is investing in new technology (this is where I reluctantly note the latest energy bill.) And they aren't alone. When I asked Energy Secretary Sam Bodman about the push for ethanol in the face of higher corn prices (see video clip), he pointed to private companies who are putting more and more money into research of cellulosic ethanol to avoid using expensive corn.
All these forces may be slow to get going, but they are just as hard to stop. That's what makes the $50 case intriguing. Remember how much oil was sloshing around the market in the 80's when crude threatened to drop below $10 a barrel?
If there were anyway to shut the tap at that point, everyone losing their shirt from Texas to the Middle East would have pitched in to do it. It's hard to imagine $50 crude today. But would you have bet on $99 three years ago?
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