Understanding Oil Prices by Salvatore Carollo

Author:Salvatore Carollo
Language: eng
Format: epub
ISBN: 9781119962908
Publisher: John Wiley & Sons, Ltd.
Published: 2011-10-27T04:00:00+00:00

Analysts, in the absence of available information, are often forced to derive their data through econometric models which allow them to be inferred. These are models which often have as their fundamental variable the sole irrefutable piece of data on the oil market, namely, the price of crude oil itself. They are, therefore, models of the type:

It is not difficult to imagine that such models can create vicious circles that often circulate in the market (see Figure 6.4). Rising prices generate forecasts of increasing demand and falling supply, and hence expectations of further rise in prices. These mechanisms thrive for what may be long periods, with sudden and unjustified collapses. But, above all, the tendency of analysts who make use of this model is to envisage the future as an exact copy of the present, with some insignificant cosmetic touches.

Box 6.1 Variations in Estimated IEA Stocks

To illustrate this, Figure 6.5 shows an example of the adjustments made to the estimate of the yearly imbalance between demand and supply, concerning the same time period, in the course of the various updates as the confirmed data become available from time to time.

Figure 6.5 Adjustments to the estimate of the yearly imbalance between demand and supply

Source: International Energy Agency

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