The New York Times notes the way in which oil prices have been collapsing in recent weeks, along with the prices of fuel at the pump.
It looks like much of the price of oil in the last few months has largely been due to speculators predicting the sort of conditions that led to high oil costs last year would continue. It isn’t that supplies are getting significantly tighter, but that the markets were getting skittish over the prospects of conflicts in the Middle East and Africa, the aftermath of Hurricane Katrina, and a booming economy. Now that those conflicts are less serious than they were, the hurricane season has been largely a bust, and the economy is settling down, the price of oil is going back to where the equilibrium point really is.
Of course, had the government intervened and tried to artificially lower prices, who knows what would have happened. The reduction in fuel costs wasn’t do to government action, but the natural reactions of the market — had the government intervened it’s quite possible we’d be worried about shortages as ham-fisted public policy introduced dramatic shifts in the market. It’s another example of how sometimes the best public policy is no do nothing at all.