Why $100+ Per Barrel Oil is a Godsend

From Holman Jenkins in today’s WSJ “What’s Right With Gas Prices“:

“Ironically, the best therapy [for higher oil prices] is a higher oil price. It makes it profitable to bring into production more costly resources around the world. The rise in recent years to $100-plus a barrel is a godsend. Peak oil theorists are being refuted; so are greenies who imagined a towering oil price would usher in a carbon-free future. The opposite is seen to be true. Oil sands, shale hydrocarbons and even biofuels have been made profitable with existing technology, and of course technology can be counted on to advance.

A higher price not only elicits the new supplies to satisfy Indian and Chinese motorists; it helps to distribute production more broadly around the globe and lets the world be less dependent on cheap Mideast oil.

Gasoline is the most visible price in the economy, and its gyrations cause the juju men in Washington and elsewhere to do crazy things, if not so crazy when understood that their real goal is to receive praise and ward off blame for the behavior of energy prices. But the price mechanism itself is still America’s real energy policy, thank God.

One last thing: In the past 100 years, the real price of gasoline, in current 2011 dollars, has spent almost all its time between $2 and $4 (see chart above, data here). So today’s price is hardly the end of the world.”

About Mark J. Perry 262 Articles

Affiliation: University of Michigan

Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.

He holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University in Washington, D.C. and an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota.

Since 1997, Professor Perry has been a member of the Board of Scholars for the Mackinac Center for Public Policy, a nonpartisan research and public policy institute in Michigan.

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