President Bush has signed the recently passed energy bill into law. So what does this mean for you and me? There are two key provisions in the law that may affect you:

1. Increasing the supply of alternative fuel sources by setting a mandatory Renewable Fuel Standard (RFS) requiring fuel producers to use at least 36 billion gallons of biofuel in 2022.
2. Reducing U.S. demand for oil by setting a national fuel economy standard of 35 miles per gallon by 2020 - which will increase fuel economy standards by 40 percent and save billions of gallons of fuel.

If you are in a corn producing state (or have invested in ethanol stocks) you’ll be happy to know that this law pretty much insures strong demand for domestic ethanol. The market agrees. Pacific Ethanol Corp., the largest ethanol producer and marketer on the West Coast, was up 18% today after having a very rough year. This law gives a very strong signal to ethanol producers as the clean energy fuel source of choice due to the lack of provisions for the extension of the wind and solar tax credit.

It also means that the average fuel economy of passengers cars will increase over the next decade due to the increased CAFE standards. So we’ll definitely be seeing more smaller vehicles and many more hybrid electric vehicles on the road. Strangely enough, rising oil prices have accelerated public demand for increased fuel efficiency. But now that this is a law expect auto companies to take more proactive steps to bring fuel efficient vehicles to market faster.

The net effect of all this should be a steady decrease in oil prices. As demand decreases the commodity becomes less valuable. But don’t expect drastic changes in oil or gasoline prices in the very near future. It’s going to take several years at a minimum to bring the right technologies online in large enough amounts to really force the worldwide petroleum markets to react to the changes.