Oil Industry: Won't Get Fooled Again

"Everyone running an oil company today is a survivor of that massacre, and that affects their behavior on capital spending and the like. I don't think this point can be emphasized enough."

The quote of mine above, which concluded a Columnist Conversation exchange a week ago, triggered a number of e-mails as well as a request for elaboration from Cody Willard, who certainly has brought a great deal of insight to both oil and oil stocks on RealMoney.

I have tried over the years to establish several broad ideas, including a long-term skepticism about real commodity prices. The record is clear: Over time, real commodity prices must fall as a factor input to production; this reflects the effects of substitution, technological improvement and other efficiencies. Over the long term, betting against human ingenuity loses.

But between now and the long term -- a concept not marked on anyone's calendar -- supply and demand can move into imbalance and require higher prices to move back into balance. This certainly has happened in the energy markets. Whether the current imbalance reflects the inevitable consequences of Hubbert's Peak , which is to geology what the Laffer Curve is to tax policy, is immaterial. (Everyone can agree on three things about the Laffer Curve: At either a 0% or a 100% tax rate, the government takes in no money, and there is some optimum point for tax revenues in between. So profound.) ...