I am simply unable to parse this last sentence. You’re saying there’s a bubble in oil prices, and the GOVERMENT will have to step in? How do you propose they do that? Bid up the price of oil? Give price supports to commodities traders? Fix the price of oil at $80/barrel to save those poor comodities traders from bankrupcy? 
Open the strategic reserve. Induce rationing. Any number of things, really. Remember, this isn’t a purely capitalistic society. It is possible for the government to regulate things. Hell, they could even implement a price ceiling if they wanted to. I have no idea what would happen if they said ‘it can’t be sold over $60/gallon’, because theoretically, nobody would sell it in the US, but I don’t think the demand outside the USA is that elastic.
I’m trying to remember the 70s and the Oil Czar. How were things handled then?
The bottom line is petroleum is a finite resource. And not just theoretically finite - we are actually using it up at an appreciable rate. So even when prices go down it’s not a good thing - it just means people will increase their usage in the short term and that means the total supply will diminish faster and drive up future prices faster.
The average price of gas is going to keep going upwards. Any decrease in prices will be temporary fluctuations.
The strategic reserve has about a thirty day supply of petroleum in it. It wasn’t intended for fixing the market; it’s supposed to be an emergency supply to tide us over in case Saudi Arabia has a civil war.
Setting a price cap won’t work. We’re already competing against other countries in the world market. If we refuse to pay market prices, nobody will sell to us. They might have a temporary drop in sales, but they’ll still be selling to 75% of their regular customers and we’ll be buying 0% of our regular supply. Who do you think will break first?
And a rationing plan is just another form of shortage. It might organize the problem but it can’t fix it.
I’m confused, you just said that there will be a commodity BUBBLE which will eventualy lead to a CRASH, that is, a drastic drop in commodity prices and a return to fundamental valuation.
Probably not. If you live in a place where gas has long been expensive, due to taxes, then you probably long ago purchased a gas-sipping car and figured out how to use mass transit. So the per capita gas use is going to be less there, and the $1 per gallon increase will not hit as hard as it does here.
I believe that $100+ a barrel is not a sustainable price. I believe that people will try to… are trying to push it that high, or higher. I believe that there will be some sort of abrupt drop when it hits that high a level. Maybe it’ll go as low as $80 again.
There’s no way we’re seeing $30/barrel, but I think I’m seeing people drooling at dollar signs, yes. As for the Strategic Reserve not being enough, yes, I know. I’m just listing what I can think of that the government can do. I don’t know what else they can do, but I’m pretty sure people are going to demand ‘something be done’. What else can they do?
Crude oil is a finite resource but that doesn’t mean that gasoline itself is all that finite in reasonable human terms. E-Sabbath is right that the tar sands in Alberta, Canada which represent more oil than all of Saudi Arabia and perhaps about as much as the entire Middle East are frantically being opened as the price of crude oil crosses the threshold for profitability for the tar sands. Those alone should take us through our lifetime and the increased supply should hold prices down within a certain level.
Even if we disregard the tar sands, the coal reserves in the U.S. alone are enough to last us many hundreds of years with increasing demand and if you combine that with Canada’s coal deposits, much longer than that. The process to make gasoline from coal in large quantities has been known and tested for decades. The main problem with this process is that it is dirty and coal mining has environmental impacts.
While I agree that crude oil demands will require big changes, it simply isn’t true that we won’t have enough gasoline in our lifetimes. Shifting over to these, previously expensive sources should greatly influence the gasoline supply and demand curve.
The thing about the oil sands is that extracting usable oil from them is an energy- and capital-intensive process. You can’t just open up some taps and pump the stuff out. Oil production in the tar sands simply cannot ramp up fast enough to cover the current (and growing) gap between demand and supply.
I should point out though that it’s profitable at far less than $70/bbl. I think the line is somewhere around $30-40. They’ve been pulling oil out of the sand for years already. Thing is, to increase production you have to spend billions and billions of dollars building infrastructure. This doesn’t happen overnight, particularly in a region several hours away from the nearest large city. There are critical labour shortages up there in every field from oil itself right down to convenience store clerks and burger flippers, but the unemployed aren’t swarming in to get jobs (well, they are, but not enough of them) because housing is impossible to obtain, and construction crews can’t build new houses fast enough because they have critical labour shortages too. It’s all just going to take time, and even then the output in barrels/day will never even come close to what the Saudis can do. This means it will last a long time, but the oil sands will never supply all the oil the global market wants.