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We Can Lower Gas Prices Now If We Drill, Drill, Drill

Posted on July 02, 2008

SPOT PRICE + CARRYING COST = FUTURES PRICE Harvard economist Martin Feldstein explains in yesterday's WSJ that the relationship between future and current spot oil prices (see equation above) implies that an expected change in the future price of oil will have an immediate impact on the current spot price of oil. When oil producers concluded that the demand for oil in China and some other countries will grow more rapidly in future years than they had previously expected, they inferred that the future price of oil would be higher than they had previously believed. They responded by reducing sup...

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