The cooling economy is sending oil prices lower, and speculators are backing out of their futures and options contracts. As a result, oil prices have declined to $85 per barrel, and they are expected to go lower. Although the long-term issues with oil supply and the increase of demand from India and China require attention, the Chicken Littles of the Environmental Movement who have predicted that "the end of oil" is nigh seem to have been wrong.
The moral of today's story is that the forces of Supply & Demand actually work. Without government intervention, the price of oil has declined. Why? Because prices outpaced demand. The buyers and speculators took note and began to sell. Insofar as oil has been very slightly responsible for the inflationary pressures in the economy, they will now back off a bit. This will have a positive effect on the rest of the economy as well. Unfortunately in our instant gratification, consumerist culture that is entirely devoid of patience, the people clamor for government action before the markets have time to adjust, and in the process they make the problems even worse.
We will learn our lesson one day...
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