When prices are rising the prevailing wisdom is that prices will continue to rise. When the market fall the prevailing wisdom is that they will continue to fall.

Rising prices trigger a sequence of repsonses. Initailly fear sets in and people buy more thinking that if they wait they will pay an even higher price. This is true with capital items and commodity products like steel. They will also question their existing supplier and investigate new sources, becoming even more engaged in the process of buying. The initial reaction may be counter intuitive to basic pricing theory, and they will actually buy more and expedite projects to beat further increases.

When the higher prices persist, people will alter behavior in repsonse. If gas prices remain high long enough more consumers will buy hybrids, carpool, work from home, travel less, and act to consume less.

If suppliers forsee higher prices, marginally producing wells are explored, investments are made in more efficient technology and alternative fuel sources will develop.

Nothing rises forever. Higher prices seek their own resolution.

Per capita consumption of fuel has declined in the US for the first time in decades. There is speculation of a 200 billion barrel oil field in the Dakotas that could make us nearly oil independent. Add a few nuclear power plants, authorize a few new refineries and tap a few other sources and we can tell the shieks to ‘pound sand.” They have plenty of that too.