Seeking a more stable oil market

Volatility in oil prices has been persistent in the last few years, but the trend has pointed upwards. The reasons have included healthy economic growth and demand, especially in China and India, in addition to limited spare capacity, increased speculation, weak dollar, limitations of the global refining industry and the fear factor created by the geostrategic situation around the world. There are also the trouble spots engulfing some of the producing countries as exemplified by the invasion and occupation of Iraq.


In the long run, there are many factors that will determine the evolution of the oil market. The economic growth rates of recent years are expected to moderate to an average of 3.5-4 per cent due to higher energy prices and the recent problems in the financial markets. However, growth rates in developing countries, particularly China and India, could be more than five per cent.

Long-term outlook

Current prices have not yet caught the attention of long-term researchers. The Organisation of Petroleum Exporting Countries (Opec) assumes the price in 2030 will be in the range of $50 to $60 a barrel. The International Energy Agency (IEA) assumes the price will reach $62 a barrel by 2030, in constant 2006 dollars. Of course, it is possible for prices to moderate as new capacity comes on stream or if the economic prospects worsen, but the projected levels seem to be low.

The recent doubts about the resource base may be hyped a little, but they created a perception of shortage as there is no doubt that the world is consuming more oil than it is finding. However, if the peak oil theory is correct, the world will approach peak production sooner than some of us would like and a decline will set in thereafter. There is therefore a need for an intense search and development of new resources, including but not limited to, heavy oil and an improvement in recovery from existing fields.

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