Black Gold

BLACK GOLD….Oil prices are down and Wall Street is delirious:

The pullback in oil prices, which have fallen nearly 20 percent in under a month, has fanned optimism that the crisis in the commodities markets might have eased, and gasoline prices might soon come down further.

….Among investors, there is a broadly held view that growth is slowing not just in the United States but worldwide, and that demand for fuel will ease in turn and bring oil prices back to more reasonable levels. “It’s a fact that demand is slowing down,” [Fadel] Gheit said. “I do believe, more likely than not, we’ve seen the peak in oil prices.”

High gasoline prices have reduced oil demand in the U.S., which in turn has fed back into the global market and helped bring oil prices back down a bit. In other words, supply and demand is working normally. Speculation likely had little or nothing to do with either the runup or the rundown in oil prices.

That much is good news. The fact that a global recession might reduce demand further isn’t. This is because, you know, global recessions are bad. Anyone on Wall Street who’s bidding up stock prices because they think a recession is worth it as long as it lowers oil prices is crazy.

However, there’s a small ray of sunshine from all this: if oil prices stay slightly down for a while, it might reduce the current political panic for dumb short-term energy panders. That’s not worth a recession either, but at least it would be a small upside to one.

And as long as we’re on the subject, keep in mind that this is all short-term stuff. In the long term, you can count on oil prices to continue heading up. The events of the past month haven’t changed the fact that global oil demand will continue to rise while global oil supply will remain fundamentally constrained. Don’t head out to buy a Hummer just because gas is flirting with $4 a gallon again.