Sustainable oil price is $70-90: ESAI
(ESAI, Energy Security Analysis Inc, is a Massachusetts-based energy consultancy. The opinions expressed here are those of ESAI.)
The crisis is over, economies all over the world are recovering, record unemployment is slowly subsiding, and oil demand is growing. The logical question now is where will oil prices go from here? The question is not what the price of oil should be, as discussed at last month’s International Energy Forum. Likewise, it is not what is the equilibrium price.
Equilibrium price is a concept, offered by classical economists, which asserts that there is a price at which supply and demand balance. Price behavior, especially in recent years, has proven that this is an overly simplistic and unworkable concept for the oil market. There is never a point in the global oil market when supply equals demand, and thus there is no such thing as an equilibrium price. The right question is what is the fundamentally sustainable price?
The distinction between equilibrium and sustainability is important.
Equilibrium implies perfection and stability, ideas that are not endemic to the modern global oil market. Sustainability is a created word from the environment community that implies the ability to maintain or endure. Whereas equilibrium suggests certainty, sustainability suggests survival amidst uncertainty.
The difference between a market that is perfect and stable and one that endures has implications for forecasting. In short, it is foolhardy to try to project an equilibrium price, but identifying a fundamentally sustainable price range is a useful endeavor.
So, in answer to the question, what is the fundamentally sustainable price, the answer is not a number. It is a price range within which prices are likely to move for some time based on expected overarching supply/demand fundamentals.
Bleak outlook for U.S. oil refiners
– John Kemp is a Reuters columnist. The views expressed are his own –
Even by the standards of a deep-cyclical industry, the “golden age” of oil refining has proved remarkably brief, lasting no more than three years, before giving way to a new dark age.
Particularly in the United States, refiners have returned to the state of chronic unprofitability that plagued the industry before 2005.
U.S. refiners now have too much capacity and produce the wrong products (gasoline) in a fuel economy increasingly dominated by ethanol and diesel. Capacity cuts of as much as 0.5-1.0 million bpd (equivalent to 4-8 average refineries) and expensive investment to reconfigure the system to increase the diesel yield seem inevitable.
EVAPORATING PROFIT MARGINS
In May 2007, U.S. refiners paid an average of about $64 a barrel to acquire high quality West Texas Intermediate (WTI) crude (less for other grades) and sold gasoline for $97 per barrel – a margin of $33 per barrel or 52 percent.
2008
5:56 am GMT
– well in this situation both demand and supply should be
– balanced that poor consumer would not effect badly like
– what happen in past when the prices was very high and
– people don’t have money to save. So both demand and
– supply should be balance equally that in future we all
– wont face the supply shortage and again it gonna jump
– to above $100.
– – Posted by Muttaqi
The futures market is the machine which does this balancing. The problem is that nobody knows what future conditions will be. We guess. We do the best we can. Anyone who is willing to put their money where their mouth is can participate, through the commodities and commodity futures market in this great feat of prognostication. People who have made good predictions in the past can use their profits to continue to predict. People who have made bad predictions lost money, and so are less able to move the market in the future. It ain’t perfect, but it’s the best *possible* system.
The problem with the Socialist ideal — the government should make these decisions for everybody — is that it presumes that anybody who works for the government is omnipotent and omniscent. Having lived under George Bush’s sad, pathetic reign should have eliminated that superstition, but the socialists now think that Obama has some magic ability to know the future. He doesn’t. Nobody does.
We are imperfect human beings, ignorant of our future, and we have two choices: we can accept our humanity, and live under a capitalist system where we are free to benifit when we’re right and take responsibility when we’re wrong, or we can switch to a socialist system where when the dictator is right everyone benifits and when he’s wrong everyone suffers — except for his henchmen, who still live well at our expense.
I’d rather suffer for my own mistakes than suffer for somebody elses. I’ll take capitalism any day.
Oil at any price is not sustainable. Neither is coal. The threat that fossil fuels present to the environment is staggering. Not only do they contribute to global warming but the process of extraction and use can cause catastrophic destruction. Let us not forget the Exxon Valdez, Kingston Tennessee fly ash spill and the current BP Gulf disaster.