This paper would be dedicated to the assessment of the Oil Price Change from two opposite perspectives - the one, offered by Michael Levi (Bloomberg News) and opinion of Mr. Horsnell, a veteran oil analyst. In this paper, it is essential to consider the change in oil prices from retrospective - as the significant increase in oil prices has taken its place on Feb. 1, 2011, - as it has reached more than $100 a barrel. For the timeframe of several years, this rate was kept almost unchanged; there were only few dramatic ups and downs, which, in turn, are inherent to the market of oil. That is why, the sudden decrease of oil prices in June 2014, has created the fertile background for emergence of the disputes among the experts. Some of them have claimed that there is a need of keeping the price for oil at the rate of $100 a barrel, while other have supported the need for its decreasing.
Michael Levi (Bloomberg News) has announced that the new era is entered by the oil and that is why, there is a need of being adapted to the new age of the low-price oil: “OPEC is “throwing in the towel,” declared the head of oil research for a major bank, transforming energy markets “for many years to come.” A new age of low-price oil, with OPEC on the sidelines, is upon us, experts declared — and everyone has to adapt” (Levi 1). At the same time, before anyone shifts the attention from the dogmatic approach towards the oil markets and the major changes, which take their place within these markets, to the radically different, but at the same time, equally certain approach, the following question emerges - why so huge number of experts was wrong regarding the forecasts for the prices of oil.
Among the major arguments for such trend, it is possible to outline the set of the following factors: not optimistic assumptions regarding the way, the oil industry of United States works, as well as regarding the power of Saudi Arabia and OPEC. These three major factors have created the set of the complications for the experts in terms of the current trends for the prices as well as their expected changes.
Initial reason for the boom in US was the “tight oil”, which is also referred in the scientific literature as the shale oil. While taking into account the fact that it is manufactured through the means of fracking, it is more responsive to the conditions of the market – in comparison to the oil, which is manufactured by the traditional means of drilling. In the case of the tight oil, there is an option of proper planning of the manufacturing process - in a timeframe of several moths rather than in longer timeframes. In other words, such production may be boosted in a rather prompt manner – in the case if needed; oppositely, in the case of stopping the process of drilling, the quick production drop off takes its place. Such factors have shaped the opinions of significant number of experts, who have stated that in the case of development of the glut alongside with the fall of process, the rapid slow in the manufacture of the tight oil takes its place and the prices, in this manner are stabilized.
While referring to the real state of affairs, it is possible to make a statement that the tight oil is more responsive to the trends in the markets and that is why, the price adjustments in this case are immediate. This trend may be traced from the state of affairs in the timeframe 2011-2012 – as booming production of shale gas has led to the decrease of the gas prices for approximately 60% one year before the pull back was made by the manufacturers.
The reinforcement has taken its place in the winter 2015-2016 as the demand for the fuel has increased because of the cold weather conditions. There was no option of prompt increasing of the quantity of manufactured gas and that is why, the prices for the natural gas have increased for 50% during the timeframe of one month. While discussing the current state of affairs in terms of pricing for the oil, it is possible to state a fact that there is an option of generation of the relatively rapid rebound by the set of the following contributing factors: the decreases in the total number of the U.S. oil supplies – as soon as the bottom lines are reassessed by these companies; straightening of the global economic system; eventual decision of the government of Saudi Arabia for cutting back (Levi 1).
This opinion may be referred as a credible one - as it is published by an authoritative online edition “The Washington post”. The author of the article is a director of the Center for Geoeconomic Studies at the Council on Foreign Relations as well as the author of “The Power Surge: Energy, Opportunity, and the Battle for America’s Future” (Levi 1) That is why his opinion is supported with the scientific experience and awareness in the area of economic studies and oil sector.
There is one more opinion of the experts, regarding the oil prices, which would be discussed in this paper. While discussing the estimated oil prices in the timeframe of 2016 and within the forthcoming decade, it is possible to refer to the opinion of Mr. Horsnell, a veteran oil analyst, who has made a claim that from the economic perspective, inventories may be referred as the phenomenon of the second-quarter.
The major argument for such statement is the fact that the inventories may sort themselves out due to the seasonal demand increases. In addition, the seasonal increase in demand may generate some complications in the oil supply. The set of the drops was recorded by the Energy Information Administration in the production of the Crude oil in US. That is why, the significant fall downs are estimated by the experts in May 2016. While the demand is tending to its maximization in the third quarter of the year (due to the natural conditions), it is possible to expect the balancing o the supply with demand. Additional emphasis of Mr. Horsnell was out on such contributing factors of the price formation as shale question. It was claimed by the expert that the “difference between shale gas and shale oil is that output from a shale-oil well declines much faster than from a shale-gas well.” (Friedman 1). In order to keep the high rate of the oil output, there is a need for the large amount of the drilling. It was estimated by the expert unless the process of drilling’ recovery takes its start as well as the process are increased, the following trend would be observed - the constant falling of the U.S. output. While referring to the forecasts on the oil prices for the timeframe of the next decade, it was claimed by Mr. Horsnell that despite the set of attempts for minimizing the costs for oil, the significant volumes of the crude-oil production become for expensive; thus there is no actual trend for minimization of the prices for the end consumers (Friedman 1). This opinion may be referred as a credible one – as both the author of the article as well as the experts, who have been interviewed by the author, have the scientific and practical experience in their area of competence – oil sector.
Friedman, N. Where Are Oil Prices Headed? Two Experts Make Their Conflicting Cases. 2016 <http://www.wsj.com/articles/where-are-oil-prices-headed-two-experts-with-conflicting-views-debate-1430881502>
Levi, M. Why the world missed the oil price crash. 2014 <https://www.washingtonpost.com/opinions/why-we-missed-the-oil-price-crash/2014/12/05/d1fbf552-7a57-11e4-9a27-6fdbc612bff8_story.html>