Think of this as Volume 15, Number 1 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.
With the stock market just starting to point toward better times ahead, the price of oil went past $90 per barrel, and the average price of a gallon of gas rose above $3 per gallon.
This is not supposed to happen at Christmas.
Prices rose not because of weather, and not because of costs, but simply because they could. The price of energy is set in two markets, New York and London, and no matter where the oil comes from it moves at that price. Some think we're looking at $5/gallon by 2012.
That price has nothing to do with costs.
A low cost supplier like Saudi Arabia makes an enormous profit at $90/barrel. Even $50/barrel production from deep under the Gulf of Mexico becomes profitable at today's prices. Despite all the talk there remain vast reserves of oil underground, which can be produced when the price is right.
The result is we've put our national security into the hands of Saudi Arabia. The whole point of the Iraq war was that their pools near Basra are similar to those the Sauds control, and once they're drilled they can be pulled up at a similar cost. Somehow the Bush people thought that controlling this pool would enhance our national security.
They were wrong.
How we cut the string is best understood by looking at the economics of oil and solar power.