True North

I'm not predicting a big cost crash on oil but I'm betting we'll see lower gas prices within the next month. I'm basing my opinion at least in part on this article. Here's one thing that stood out for me:

Saudi Arabia will raise oil production to record levels within weeks in an attempt to avert an escalation of social and political unrest around the world. King Abdullah signalled the commitment to the UN secretary general, Ban Ki-moon, at the weekend after the impact of skyrocketing oil prices on food sparked protests and riots from Spain to South Korea.

Next month, the Saudis will be pumping an extra half-a-million barrels of oil a day compared to last month, bringing total Saudi production to 9.7 million barrels a day, their highest ever level. But the world's biggest oil exporters are coupling the increase with an appeal to western Europe to cut fuel taxes to lower the price of petrol to consumers.

Increasing production surely will lower prices, though it's still unknown by how much. What's influencing my opinion more is this statement:

Saudi Arabia, which has called an emergency meeting of oil producers and consumers in the port city Jeddah next Sunday, says the energy crisis has not been caused purely by market pressures but by a speculative bubble. Saudi Arabia and Opec believe there are no shortages to justify the sudden surge in prices.

TRANSLATION: Oil prices should be high because of the high demand and and inadequate supply but prices shouldn't be this high.

It's obvious that the Saudis think that prices are unjustifiably inflated because of speculators trying to make a fast dollar. If I adapted Alan Greenspan's "irrational exhuberance" cliche to today's gas situation, Greenspan's statement would likely include the phrase "irrational pessimism."

For the record, Byron Dorgan, appearing on an energy roundtable on FNS, repeated the Democrats' mantra that "you can't just drill your way out of this crisis." That means that the Democrats' presidential candidate, a Democratic senator and the Democratic Speaker have all declared that we can't drill our way out of these high prices.

I pray that they'll keep repeating that mantra. If they do, the momentum in this election will swing. If Democrats keep repeating that mantra, I wouldn't be surprised if Republicans don't lose seats in the House while keeping the losses to a minimum in the Senate.

Comments welcome at LFR.