The Cure For High Crude Oil Prices Is….High Prices

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When demand curves shift right, it means something has changed which favours higher prices per unit for producers. This is essentially what is happening, one commodity at a time, in the resource market – especially with oil.

Oil prices rise when demand grows faster than supply, resulting in the rightward shift of the demand curve. The curve also shifts right when there aren’t any substitutes to erode the demand for a given commodity. Are there substitutes for oil? There are some, but it depends on what you’re using it for. And these days, the traditional substitutes for oil – natural gas and coal – have their own problems, like depletion and a growing backlash against carbon dioxide. Another shift to the right.

The cure for high prices is, of course, high prices. The demand curve stops shifting to the right once prices get so high they actually destroy demand. This is what’s known as “demand destruction”. We may see that in base metals and energy before too long.

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. For some reason I don’t think John Howard will be using that in his upcoming bid to win the election. Even though it is accurate.

    Reply
  2. But demand destruction

    is already happening
    http://www.energybulletin.net/31766.html
    but it is a silent crisis .
    http://www.energybulletin.net/8416.html

    I’ve been trying to raise awareness about this ‘silent crisis’ in as many ways as possible:

    building new stadia, freeways in Van
    http://www.countercurrents.org/po-henderson180706.htm

    our whole western, christian socio-economy
    http://civillibertarian.blogspot.com/2005/07/demand-destruction.html
    and
    http://www.warmwell.com/05jul17demanddestruct.html

    going to a Canuck game in our bottleneck predicament
    http://www.conservemag.com/2007/04/01/peak-oil-energy/pro-hockey-consumption/1/

    I have tried to raise these basic footprint and expanding ethical circle concerns on the Sunshine Coast for years. Thank you for doing similar in your neck of the woods,

    Bill Gibsons, B.C.

    Reply

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