Publications: Notes at the Margin

Price Expectations (February 2, 2015)

 

This Notes at the Margin extends the discussion of the oil industry’s irrational exuberance we began last week. Our focus here is the failure by many to accept the view that oil prices have moved to a new lower equilibrium level. In our view, though, the price decline is not at an end. It could easily go further, especially if the United States needlessly inflames low-cost oil producers by lifting its oil export ban. The primary subject here, though, is expectations. Specifically, it appears that Middle Eastern producers, especially Saudi Arabia, seek to bring an element of economic sophistication to a business that needs it desperately. In particular, the Kingdom apparently wants to introduce the concept of price expectations into the thinking of those who invest in oil developments and those who buy and sell crude and products.

 

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