Andrew Leonard: Oil Price Conspiracy Theorists: Rev Your Engines. More details on how speculation has driven up the price of oil (somewhat). Main thing to note here is that Asian countries like India have started to cut back on energy subsidies, which will sooner or later work to reduce demand, which will at least temporarily bring prices down (a bit). When prices drop, it will be similar to our recent experiences with asset bubbles collapsing, leading to the conclusion that the price rise was just a bad case of irrational exuberance (if not downright fraud). People who have a hard time learning will continue to have a hard time learning. The price of oil is still mostly a function of demand exceeding supply.

Euan Mearns: Why oil costs over $130 per barrel: the decline of North Sea Oil. This is a good case example on how peak oil works. The North Sea oil fields started development in the mid-1970s when Europe and the US were being rocked by price spikes from the Middle East. They are expensive offshore developments. The companies naturally wanted to get their money back as quickly as possible, so they built and pumped as fast as they could. The countries never joined OPEC, never trying to limit production. The find were big enough they had a significant negative impact on world prices in the mid-late 1980s. It's clear now that they peaked in 1999-2001 and have declined ever since. Whereas large fields were discovered in quick succession in the 1970s, new finds have been scarce and smaller ever since -- a pattern that holds true anywhere else you care to look. The UK has already returned to its previous status as a net oil importer.

It's easy to get confused trying to look at worldwide oil figures, but when you look at individual fields and regions this same pattern recurrs consistently. Matthew Simmons' Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy provides just this sort of detailed analysis for Saudi Arabia -- although the Saudi case remains a bit muddier because the government restricts so much detailed information on its oil resources. As someone points out in one of the numerous useful comments here, the big West Texas oil fields fit the North Sea case even closer, in large part because in both cases private interests were able to maximize exhaustion of the fields.

Saw a piece in the Wichita Eagle this morning with all sorts of current arguments about how to fix the high price of gasoline: open the Alaskan arctic up to drilling, drain the strategic oil reserve, regulate commodity futures markets, raise interest rates to boost the dollar, not sure what else. They all strike me as marginal, or worse. If supply can't increase, demand will have to reduce, and the most efficient way to do that is to let high prices damper our enthusiasm for the product. Obama has proposed a windfall profits tax, and that makes sense: while high prices are the right thing now, the decision who gets those profits is political, and there's plenty of reason to think the oil industry should be cut out of as much as possible. (Just take a look at where the oil barons have made their political investments.)

PS: My own pet tax scheme is to make corporate income taxes progressive, so that big companies with big profits pay more. The oil companies are the obvious cases right now, with patent-monopoly pharmaceuticals close behind -- both of those cases involve politically secured windfalls. But progressive corporate taxes would also provide a damper against excessive aggregation, and would help smaller companies compete against larger companies' scale advantages (e.g., WalMart). It might even help break up large companies into more competitive units, as well as inspire new competitive enterprises.

PPS: Initially posted this without the Leonard piece. Put it up front in the update because it makes more sense there.