Oil Price Plunge/Risks, Rewards

This is the good part of Bordoff’s piece describing the cyclical nature of crude oil:

http://www.cnn.com/2016/01/14/opinions/bordoff-risks-and-rewards-oil-price-plunge/index.html

 

“Yet history shows fuel costs will rise again, potentially sooner than expected. The possible drivers can already be seen. U.S. production is falling and should decline steeply this year. Globally, capital investment in oil and gas has been slashed by almost $300 billion. Demand growth could erode the buffer of now plump global inventories. And geopolitical risks — which are growing in the low-price environment — could cut oil supply.

Unlike in the past, however, OPEC cannot act to prevent an oil shock. The producer group’s spare capacity — its ability to add supply quickly to markets to compensate for disruptions — rests at a historically low level. While U.S. shale oil production reacts to price changes faster than does conventional oil, it is not nearly as reactive as OPEC. Without a significant buffer, the world may experience higher oil price volatility, and because oil trades in a global market, any price spike will hit U.S. consumers at the pump.”

But the fuel tax he recommends is regressive (hitting middle class and lower income folks harder as a percent of income)…