Sunday, April 08, 2012

As Many Views on Oil Prices as There Are Analysts

There is a wide range of opinion available from "expert analysts" regarding the determinants of oil prices on world oil markets -- almost all of which are contradictory.

Analyst Matt Badiali thinks that oil prices are due to crash soon, due to increasing oil inventories.

Economics professor Robert Pollin thinks that no matter how much oil is in hand, oil prices will continue to go up due to speculation.

Both analysts think that there is plenty of oil around. Batt Badiali thinks that "supply and demand" still controls market prices, whereas Robert Pollin thinks that oil speculation magnifies and distorts the real and imagined effects of supply and demand fluctuations so badly that practically all the rules of "supply and demand" have changed.

And despite the fact that world oil proved reserves continue to grow -- and are at the highest level ever -- there are also plenty of "peak oil" analysts who are predicting huge near-term price spikes up to $200 a barrel and much higher. These are the same analysts who helped to deplete pension funds, hedge funds, university endowments, and ordinary investor's savings during the 2008/2009 oil price debacle.

If the oil markets are as easily manipulated -- in spite of supply and demand -- as many economists believe, small investors need to be particularly careful when investing in oil, no matter how strongly they feel about supply gluts or constraints.

This caveat is especially applicable when so many of the world's large oil and chemical companies are investing many billions of dollars in the development of substitutes for conventional crude oil. It may take a decade or two for the economics of CTL, GTL, KTL, BTL, BitTL, etc. to accommodate large scale substitution for crude oil, but markets have been known to look ahead, once a trend seems inevitable, or even highly likely.

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Blogger astrodominant said...

It is already starting. Given the glut of NG in the US, exports are now on the horizon. The prices of LNG out of the US would destroy the economics of half of the LNG projects in FEED stage in Australia.

1:38 PM  

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