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Here’s a letter that I sent today to the Wall Street Journal:
John McCain credits the recent fall in oil prices to President Bush’s announced support for more off-shore drilling and, hence, to the fact that the future supply of oil likely will be higher than previously thought. (“McCain Credits Bush For Drop in Oil Price [2],” July 23). Sen. McCain also blames the preceding run-up in oil prices on unjustified speculation [3].
Sen. McCain can’t have it both ways. Oil prices either chiefly reflect the underlying reality of supply and demand or they don’t. If baseless speculation caused oil’s price to rise to heights unjustified by supply and demand – if speculators are financial sorcerers who detach prices at will from underlying economic realities – how does a presidential announcement signaling higher future supplies cause lower prices? On the other hand, if a more promising prospect of greater off-shore drilling really is responsible for pushing oil prices downward (which I think more likely), why would Sen. McCain ever have blamed high oil prices on evil speculators rather than on the underlying conditions of supply and demand?
Note that I’m not saying here that speculators cannot drive prices to heights (or depress prices to depths) that are, on some reasonable calculation, inconsistent with the underlying conditions of supply and demand. I concede the reality of bubbles, both positive and negative. My point is that McCain is playing politics (duh!) to scream “evil speculators” when oil prices are rising and then announce “supply and demand” when oil prices are falling.