Read Charles Krauthammer‘s latest exposition on this issue.
· Demand is up. China has come from nowhere to pass Japan as the number No. 2 oil consumer in the world. China and India — between them home to eight times the U.S. population — are industrializing and gobbling huge amounts of energy.
American demand is up because we’ve lived in a fool’s paradise since the mid-1980s. Until then, beginning with the oil shocks in 1973, Americans had changed appliances and cars and habits and achieved astonishing energy conservation. Energy use per dollar of gross domestic product was cut by 30 percent in little over a decade. Oil prices collapsed to about $10 a barrel.
· Supply is down. Start with supply disruptions in Nigeria, decreased production in Iraq, and the continuing loss of 5 percent of our national refining capacity because of damage from hurricanes Katrina and Rita. Add to that the mischief of idiotic new regulations. Last year’s energy bill mandates arbitrary increases in blended ethanol use that so exceed current ethanol production that it is causing gasoline shortages and therefore huge price spikes.
The concept of supply and demand was taught in Econ 101 when I was a freshman in college, but American universities appear to have changed a whole lot in 20 years.