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
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by SMC on 8 July 2007:
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.
Comment by Bill Henderson on 9 July 2007:
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.