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$200 oil not a pretty scenario to consider


Wednesday, May 07, 2008

New York investment bank Goldman Sachs predicted Tuesday that the price of a barrel of oil could be $200 in the space of two years and the statement doesn't seem nearly as far-fetched as it might once have been.

For a fact, many remember when oil was a quarter of what it is now — $122 a barrel — and it hasn't been that long ago.

The prediction might be wrong and not all the experts agree with Goldman Sachs, but if it is accurate, the next two years and beyond could bring cataclysmic changes to the United States and all the industrialized world. It would be fair to say that it would not matter who was elected president in November, that sort of hike in energy prices would deal a wallop from which the world economy could not easily recover.

Up to this point the world has managed to absorb the hike in oil prices better than might have been expected. We may be about at the end of that time, though. Prices and services that held the line for a time are beginning to rise. We would think that most of the "give" has already been given in that regard.

In the near term there is very little that the United States can do about this. We know that some want to open up drilling in parts of the United States where it is not now allowed. The extra supply might be able to exert some downward pressure on oil, but this is not all related to supply and demand. If that were the case, the price would already be down. At this moment, oil is not in short supply. Part of the pressure to increase prices must come from the projected demand and projected shortages. Those projections factor in China and India, where growth is both largely unregulated and overwhelming.

In the end, we don't think there is going to be much pressure on the price of oil to go down until an alternative to oil is discovered — an alternative that is actually more efficient. This would be as opposed to ethanol, which is both more wasteful to make and has caused food prices to soar.

Our nation still is not doing nearly enough to find this alternative and we seem to be wedded to using oil. It is time for us to seek a divorce.

We can do it now or we can do it later, but eventually that is coming. The difference is how much pain we want to suffer and whether we do it voluntarily, or under force.

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