By the end of the summer, something will have happened to produce a lower equilibrium price in the market for motor fuels. I’m not sure whether that will be a reduction in demand or an increase in supply. But clearly, the current price is producing difficulties elsewhere in the economy. Possible factors include:

* Reduction in demand as people alter their driving habits.
* Reduction in demand if shipping moves from truck to rail.
* Reduction in demand if airline traffic drops enough to drive route reductions.
* Increase in supply due to a variety of international factors.
* Increase in supply (unlikely) if Congress agrees to move forward with developing domestic petroleum resources.

The only push in the other direction would be if Congress suspends the federal gasoline tax this summer. Dumb, counter-productive move.

Recession and inflation are back. Ignore doom and gloom but face the reality. The economy is or should be job ONE of the next President… the first day in office.

The U.S. economy is being stressed and inflation is back. The challenge for the Next President is to make the economy the foremost priority.

http://pacificgatepost.blogspot.com/2008/05/44th-president-your-first-challenge.html

It is being all but ignored by the current administration and Congress.

It illustrates that short term variations in practically anything don’t say much about long term trends.

The long term trend in oil prices is determined by international supply and demand conditions and will continue to go up despite occasional short term periods of stability or decline. These may be brought about by such relatively futile, short-term measures as releasing oil from the Strategic Petroleum Reserve or opening all of Alaska to production. In the intermediate term, the U.S. (and the rest of the industrialized world except for Russia) is stuck on its dependence on Middle East Oil, and so it is crucial to the world economy that that region be policed by the U.S. to prevent total chaos there.

In the longer term, the U.S. needs to develop alternative energy, probably based primarily on nuclear electric plants producing hydrogen that is then converted to synthetic gasoline. And American consumers had better quit believing in politicians of both parties promising them relief from high fuel prices, and start modifying their own lifestyles to reduce their energy costs, because the days of cheap gasoline are OVER for good.

Shake hands with beef.