Relation between current and future oil prices

The Wall Street Journal has an excellent opinion article today entitled "We Can Lower Oil Prices Now".

It makes several good points about what's driving the price of oil:

1. Oil, like many commodities, are fairly inelastic; therefore, it takes a large increase in price to decrease demand a bit. The price inelasticity is particularly relevant in the short run -- over the long run prices tend to be more elastic (the 2nd law of demand).

2.

Unlike perishable agricultural products, oil can be stored in the ground. So when will an owner of oil reduce production or increase inventories instead of selling his oil and converting the proceeds into investible cash? A simplified answer is that he will keep the oil in the ground if its price is expected to rise faster than the interest rate that could be earned on the money obtained from selling the oil. The actual price of oil may rise faster or slower than is expected, but the decision to sell (or hold) the oil depends on the expected price rise.
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The relationship between future and current oil prices implies that an expected change in the future price of oil will have an immediate impact on the current price of oil.

This is great news -- although it isn't really "news", it's just economics. The point above shows why it is incorrect to suppose that an investment now that has a delayed increase in oil production won't help prices now. If the future oil supply is increased by an action today, then that means the future price will decrease and therefore it is more profitable to produce oil now rather than waiting.

Some things we can do today to change the future market equilibrium include:
- Expanding drilling operations (for example, opening ANWR or offshore drilling).
- Investing in fuel-efficient technology.
- Requiring auto-makers to meet more strict fuel efficiency requirements.

We really ought to do SOMETHING. Actions taken now, even if they do have a delayed production/consumption effect, can change the price now.