[ohanian]

Hi all,

Here is the formula for the (minimum) price of oil. That's the price in which forms the lower bound for the price of oil.

Price = 15 x (Year - 2000) - 37

For example:

Year = 2005 Price = $37 per barrel

Year = 2006 Price = $53 per barrel

For the future

Year = 2007 Price = $68 per barrel

That is to say that on the 1st Jan 2007, the price is above $68

Year = 2008 Price = $83 per barrel

Year = 2009 Price = $98 per barrel

Year = 2010 Price = $113 per barrel

[Tanada]

$this->bbcode_second_pass_quote('ohanian', 'H')i all,

Here is the formula for the (minimum) price of oil. That's the price in which forms the lower bound for the price of oil.

Price = 15 x (Year - 2000) - 37

For example:

Year = 2005 Price = $37 per barrel

Year = 2006 Price = $53 per barrel

For the future

Year = 2007 Price = $68 per barrel

That is to say that on the 1st Jan 2007, the price is above $68

Year = 2008 Price = $83 per barrel

Year = 2009 Price = $98 per barrel

Year = 2010 Price = $113 per barrel

[TorrKing]

This formula is nonsence. If one where to make a formula of the oil price one would have to include growth and future supply at the very least.

Very simplistic, but probably more accurate: "projected economic growth" - "projected increase/decrease in oil production" = change in oil price

Example (imaginary numbers):
0,03 - (-0,025) = 0,055 = 5,5% increase in oil price

Torjus Gaaren

[Doly]

You are assuming that the price of oil increases linearly, and it looks like that in the short term. In the longer term, it approximates better by an exponential (and there are some theoretical grounds that support it should be like that). But this is only valid until all hell breaks loose when the economy crashes.

[ohanian]

$this->bbcode_second_pass_quote('Doly', 'Y')ou are assuming that the price of oil increases linearly, and it looks like that in the short term. In the longer term, it approximates better by an exponential (and there are some theoretical grounds that support it should be like that). But this is only valid until all hell breaks loose when the economy crashes.

[jaws]

Econometrics, science is measurement!

[OilBurner]

Even dafter, double the price given from above forumla to get the upper bound for that year.

Probably nonsense, but good fun all the same!

For 2004: upper 46, lower 23 - average 35
For 2005: upper 76, lower 38 - average 57
For 2006: upper 106, lower 53 - average 80
....
For 2009: upper 196, lower 98 - average 147

Random walk anybody?

[whereagles]

Hum.. it's always a bit muddy to try and model a system with chaotic behavior, but ok

[MrBill]

I am not a mathmetician and economterics give me math anxiety, but if I was looking to make price predictions based on historical prices I may consider the following variables.

Base price period one = P1
Major low: 2001 $17.50
Major high: 2005 $70.85

P1 = price in period one
P2 = price in period two
D1 = demand period one
D2 = demand period two
D2 = D1 x GDP growth x 1.5* (marginal growth not as energy efficient G7=1X, EM=2X, China=4X and represents diminishing returns)
S1 = supply period one
S2 = supply period two
S2 = S1 x 1.03* (supply expands linearly as pre-announced projects come on-line at least in short term)
T1 = threat of terrorism
T2 = threat of refinery fires
T3 = threat of weather related supply interuptions
T4 = threat of bird flu = demand destruction
where T1-T4 = probability expressed as 1/n
Sd = standard deviations from the mean
Ma = 21 day moving average

P2 = P1 x ((D2 x (1 - T4))/(S2 x (1 - (T1 + T2 + T3 + Tn)) +/- 2SdMa

where P1 when S1 = D1

But of course the trick would be to qualify the probability of each threat x the no. of bpd lost production (or demand destruction) x duration, and as we all know, energy demand cannot exceed supply in the long-run as it is a finite resource, so this might represent a snap shot of supply & demand, but fun to jump through the mental hoops.

Now Doly can tell me what is wrong with my formula? Thanks ; - )

[Doly]

$this->bbcode_second_pass_quote('MrBill', 'I') am not a mathmetician and economterics give me math anxiety, but if I was looking to make price predictions based on historical prices I may consider the following variables.

Base price period one = P1
Major low: 2001 $17.50
Major high: 2005 $70.85

P1 = price in period one
P2 = price in period two
D1 = demand period one
D2 = demand period two
D2 = D1 x GDP growth x 1.5* (marginal growth not as energy efficient G7=1X, EM=2X, China=4X and represents diminishing returns)
S1 = supply period one
S2 = supply period two
S2 = S1 x 1.03* (supply expands linearly as pre-announced projects come on-line at least in short term)
T1 = threat of terrorism
T2 = threat of refinery fires
T3 = threat of weather related supply interuptions
T4 = threat of bird flu = demand destruction
where T1-T4 = probability expressed as 1/n
Sd = standard deviations from the mean
Ma = 21 day moving average

P2 = P1 x ((D2 x (1 - T4))/(S2 x (1 - (T1 + T2 + T3 + Tn)) +/- 2SdMa

where P1 when S1 = D1

But of course the trick would be to qualify the probability of each threat x the no. of bpd lost production (or demand destruction) x duration, and as we all know, energy demand cannot exceed supply in the long-run as it is a finite resource, so this might represent a snap shot of supply & demand, but fun to jump through the mental hoops.

Now Doly can tell me what is wrong with my formula? Thanks ; - )

[legit]

B1 = Beer prices
BS = Beer reserves
T = Tobacco supplies

[Schopenhauer]

Over at Econbrowser, Prof. Hamilton has an interesting post calculating the future cost of oil at a 95% confidence interval if the price follows a Gaussian random walk. By the fourth quarter of 2010, the price will be somewhere between $14.34 and $250.99.

That's helpful, isn't it?!

Seriously though, it's a good post and worth a vist.

[MrBill]

$this->bbcode_second_pass_quote('', 'Y')ou mean, apart from including essentially non-quantifiable factors, like all your T's?

Well, I'm not sure about assuming that demand will grow linearly with GDP. A much better measure would be growth of the transport industry (plus usage for heating where it is an important factor). Also not sure what you mean with your comment about diminishing returns.

But I'm glad to find that you believe prices grow in proportion to demand/supply, because I thought that was the case, but I couldn't find a place that confirmed it. Logically, if you assume that demand grows exponentially and supply doesn't grow as fast, the result is that prices must grow exponentially as well in the long term (forgetting about temporary shocks in demand or supply).