Rational Oil Prices

It seems that Arnold Kling has been in Afghan cave during the past six months. He does not seem to think that there has been any bad news on oil supply over the last six months.

The recent run-up in oil prices represents a similar puzzle. I think that it’s difficult to tell a story for the rise in crude prices for the last six months that is based on the rational digestion of news. Either six months ago folks were overly optimistic about long-term supply and demand conditions or now they are overly pessimistic about those conditions. I don’t think that what changed in the last six months was the ews about supply and demand.

I have been watching the news, and over the past few months it has been quite horrifying, particular with the Democrats and both major party presidential candidates shooting down Shell’s plan to develop shale oil, which pretty much guarantees extraordinarily high oil prices for at least the next two decades. Indeed, the political majority in most of the developed world seem to intend to block all carbon extraction.

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