Clear Thinkers favorite James Hamilton is thinking about oil prices again, and that’s always a good thing. This time, Professor Hamilton examines the impact that scarcity rents are having on oil prices as the markets increasingly adjust for the risk of resource exhaustion:

My own view is that, for most of the past century, Dave [Cohen’]s inference is exactly correct — the resource exhaustion was judged to be sufficiently far off as to be ignored. However, unlike those whom Dave terms the Cornucopians, I do not infer that the next decade will necessarily be like the previous century. Certainly declining production from U.S. oil reservoirs set in long ago. And if one asks, why are we counting on seemingly geopolitically unreliable sources such as Iraq, Nigeria, Angola, Venezuela, and Russia for future supplies, and transferring vast sums of wealth to countries that are covertly or openly hostile to our interests, the answer appears to me to be, because we have no choice. Resource scarcity in this sense has already been with us for some time, and sooner or later the geological realities that governed U.S. oil production are also going to rule the day for the rest of the world’s oil producing countries. My expectation has accordingly been that, although scarcity rents for oil were irrelevant for most of my father’s lifetime, they would start to become manifest some time within mine. And I have been very interested in the question of when.

Read the entire post, and then try to resist calling your commodities broker. ;^)