The oil price is just plain wrong

January 07, 2015 02:47

The oil price is still too high, often too low and much too volatile. In other words, this is a market that doesnt work well for anyone.

The excessive volatility is glaringly obvious. The 50 percent price fall since June is extreme, but the market is only occasionally calm. Since 2000 the daily price has been on average 18 percent higher or lower than six months earlier.

Such variation is uncalled for, especially given the fairly modest shifts in demand. Since 1990, the annual change has never been higher than 3 percent. On the other side, the average cost of supply moves very slowly. Only modest adjustments in inventory and production rates are required to keep the price stable, as the market showed from mid-2011 to mid-2014.

The sharp shifts are as harmful as they are unnecessary.

Read more HERE

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