Rhinocrisy

Saurav points out this soothing Economist article which suggests that we need not necessarily fear for the future because of high oil prices. They say:

Nonetheless, relief may be on the horizon, though perhaps not as near as consumers would like. America’s Department of Energy predicts that growth in Chinese oil demand—one of the main factors driving current price levels—will moderate, increasing by 600,000 bpd in 2005 and 2006, down from 1m bpd in 2004. And there remains the possibility of a delayed reaction to current price levels, as consumers, particularly profligate Americans, turn to less thirsty cars and appliances.

Nuts to that. Check out the EIA projections, including the figure to the right. Petroleum consumption essentially means “driving” - 60% of crude goes into transportation of one sort or another (planes, trucks, automobiles). We’ve showed a pretty consistent trend since 1980; in order to reverse the natural tendency, either (a) technological innovation or (b) economic contraction has to take place. There WAS a huge round of conservation in the late 70s that produced a drop in consumption. But it followed on the heels of a terrible recession. And we happened to have people in power who were willing to make the necessary sacrifices (like impose more exacting standards on industry). It was not a purely market-imposed correction.

Also note that the Economist suggests moderation as a result of decrease in Chinese demand growth, not demand. This is just plain stupid. If demand continues growing and supply does not (which it cannot), then, obviously, price will increase. Even I know this.