Drill baby drill

Here's how the oil industry works: prices go up, oil companies drill for more oil in order to take advantage of the high prices, supply increases and prices go back down. Great article in today's New York Times:

The oil industry has been on a hot streak this year, thanks to a series of major discoveries that have rekindled a sense of excitement across the petroleum sector, despite falling prices and a tough economy.

These discoveries, spanning five continents, are the result of hefty investments that began earlier in the decade when oil prices rose, and of new technologies that allow explorers to drill at greater depths and break tougher rocks.

“That’s the wonderful thing about price signals in a free market — it puts people in a better position to take more exploration risk,” said James T. Hackett, chairman and chief executive of Anadarko Petroleum.

More than 200 discoveries have been reported so far this year in dozens of countries, including northern Iraq’s Kurdish region, Australia, Israel, Iran, Brazil, Norway, Ghana and Russia. They have been made by international giants, like Exxon Mobil, but also by industry minnows, like Tullow Oil.

Just this month, BP said that it found a giant deepwater field that might turn out to be the biggest oil discovery ever in the Gulf of Mexico, while Anadarko announced a large find in an “exciting and highly prospective” region off Sierra Leone.

Profits, supply and demand and the free market all combine to bring you gasoline that has been drilled, refined and transported to your local gas station for less than the cost of an equivalent amount of milk. It's the result of thousands of interactions and decisions made by any number of people harnessing their collective knowledge, not central planning.