The author considers the oil price of 140$ as a result of a bubble and predicts a slow down to 100-80$/bbl in the near future, due to a decline in demand as a result of the current oil price, and as new capacity would come on line (with some delay due to the time needed for investments to be finalized). As the price is set (according to this author) by the marginal demand/supply price, he assumes that a small decrease in demand could trigger a major decrease in price. He compares also the price curves to some previous price bubbles.
This is only a very short summary of the article, so please don't snap at me, but I would welcom a return on the article.
There's also a special mention to Jérôme in the comments.
Of all the steps U.S. President George W. Bush has undertaken to solve his country's energy crisis, the rapprochement with Iran has emerged as the most effective of all. At a cost of only one airline ticket for William J. Burns, the U.S. State Department's third-ranking official, the administration in Washington achieved an almost-immediate 12-percent drop in oil prices.
It's fun to see the "oil is a bubble" crow after the most recent price drops. It's just the 7th or so drop of that magnitude in the past year, and each time they said the bubble was over. I sense desperation... In the long run, we're all dead. John Maynard Keynes
Or are you saying I've just been lucky? In the long run, we're all dead. John Maynard Keynes
I believe that current prices are probably above medium-term equilibrium - due to overshoot and inelasticity - prices, but by how much is an open question. I wouldn't be surprised to see $80 again for a while at all. I wouldn't be madly surprised to see $200 either. I would be surprised to see $20 again.
I think it's an unusually opaque market with quite a bit going on out of sight, so usual rules may not apply.
I would expect $80 if Iraqi production ramped up to pre-1990 levels, or the Falkland oil fields turn out to be substantial and not an investment trap, or if the US economy implodes in a spectacular 1929 kind of a way.
Iraq may be up to pre-1990 levels by 2010 or maybe 2012. The Falkland field is trading well as a speculation, but the rumours have been around for a decade and a half and there's no substantial output yet. The state of the US economy a year from now is anyone's guess.
China and India continue to grow and China continues to subsidise consumption, I think all we'll see is a move from Western use to Chinese and Indian use. So I'd be very surprised by $80. I'd also be surprised by $200. But a steady run at $120 and upwards doesn't seem so impossible.
I can imagine $100 at a stretch, but I'd guess that's at the lower end of likely.
The facts are ... spike. If you look at it that way.
I think you should say: "The fact is that, if you look at it that way, it's a spike".
(Proposition N°2: "The fact is that, if you look at it another way, it's not a spike") When locusts move on, they leave nothing behind
