Oil prices in a new light

Journal Article · Sun May 01 04:00:00 EDT 1994 · Hydrocarbon Processing; (United States)

OSTI ID:7024326

Fesharaki, F ^[1]

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1. East-West Center, Honolulu, HI (United States)

For a clear picture of how oil prices develop, the author steps away from the price levels to which the world is accustomed, and evaluates scientifically. What makes prices jump from one notch to another The move results from a political or economic shock or the perception of a particular position by the futures market and the media. The shock could range from a war or an assassination to a promise of cooperation among OPEC members (when believed by the market) or to speculation about another failure at an OPEC meeting. In the oil market, only a couple of factual figures can provide a floor to the price of oil. The cost of production of oil in the Gulf is around $2 to $3/bbl, and the cost of production of oil (capital and operating costs) in key non-OPEC areas is well under $10/bbl. With some adjustments for transport and quality, a price range of $13/bbl to $16/bbl would correspond to a reasonable sustainable floor price. The reason for prices above the floor price has been a continuous fear of oil supply interruptions. That fear kept prices above the floor price for many years. The fear factor has now almost fully disappeared. The market has gone through the drama of the Iranian Revolution, the Iran-Iraq war, the tanker war, the invasion of Kuwait, and the expulsions of the Iraqis. And still the oil flowed -- all the time. It has become abundantly clear that fears above the oil market were unjustified. Everyone needs to export oil, and oil will flow under the worst circumstances. The demise of the fear factor means that oil prices tend toward the floor price for a prolonged period.

• OSTI ID: 7024326
• Journal Information: Hydrocarbon Processing; (United States), Journal Name: Hydrocarbon Processing; (United States) Vol. 73:5; ISSN HYPRAX; ISSN 0018-8190
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
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29 ENERGY PLANNING, POLICY, AND ECONOMY
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FORECASTING
FOSSIL FUELS
FUELS
GLOBAL ASPECTS
HISTORICAL ASPECTS
INSTITUTIONAL FACTORS
PETROLEUM
POLITICAL ASPECTS
PRICES
SUPPLY DISRUPTION