The laws of supply and demand are axiomatic

Irwin Kellner’s piece at Marketwatch yesterday underscores the “bubblicious-ness” (to paraphrase Fox’s Cody Willard) of the crude futures market. Power grafs:

What is even more interesting is the reason for this plunge. It is not so much due to increased supplies of crude as to decreased demand for the black stuff. This is indicative of a major change in lifestyles, personal and corporate.

Supplies of oil ebb and flow depending on the weather, strikes, terrorism and the like, so it's hard to tell if there has been any significant change. Demand is easier to track, and here the results are startling.

Take gasoline, the biggest use of oil in the U.S.. Instead of rising 1 or 2% a year as it usually does, gasoline use has been falling, year-over-year, for most of this year.

No mystery why: Americans have been reducing their driving for some time, with the year-to-year percentage decline in miles driven growing month by month.

In March, the yearly decline was a bit over 3%. That was the biggest drop in miles driven since 1942. May's drop of nearly 4% over last year was the most ever, according to the Transportation Department

What happened in 1942? Gasoline was rationed because of the wars in Europe and the Pacific. If this trend holds for any length of time, I say oil futures fall below $80.

The Middle East is a two tined fork, with the pointy bits being terrorism and petroleum extortion. By overthrowing the Taliban and Saddam Hussein then routing al Qaeda in Iraq, we’ve more or less handled the first pointy bit. Now we have to address petroleum usage and our addiction to oil from that region. Drilling here is a good start and I think we’ll see that start in earnest sooner rather than later. When combined with solar and nuclear, we should be in good shape. But we can not do one without the other. We must do both and quickly.