Get ready for oil at Us$150

This week’s victory by Premier Ed Stelmach in Alberta, over the objection of the oil industry, is another predictor for $150-a-barrel oil by 2010.

Alberta was the type of political event that one analyst has dubbed “reverse elasticity” –or the fact that high oil prices feed on themselves because they actually lead to a reduction in supplies, or new taxes on production, which slows down exploitation. This stands on its head the free market’s idea that higher prices always result in more supplies, thus correcting high prices downward.


Alberta is a case in point, where the rookie Premier was elected even though he imposed sizeable new royalties on the oil industry, helping trigger a lot of layoffs and a slowdown in drilling. Stelmach’s new royalties may have annoyed the oil guys, but his two opponents proposed even greater royalties on oil and natural gas. Albertans, in other words, wanted to take a bigger bite out of the Oil Pie, and their electoral choice was merely who could get away with what in the form of new taxation.

This type of “reverse elasticity” is why oil will march to $150 a barrel.

National Post