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The AAPG/Datapages Combined Publications Database

AAPG Special Volumes

Abstract


Pub. Id: A079 (1985)

First Page: 63

Last Page: 70

Book Title: SG 19: Economics and the Explorer

Article/Chapter: Significant Trends in the Downstream Sector -- The Pricing of Crude Oil

Subject Group: Oil--Methodology and Concepts

Spec. Pub. Type: Studies in Geology

Pub. Year: 1985

Author(s): John G. Yeager

Abstract:

When the OPEC nations nationalized the producing properties of private oil companies during the early 1970s, control of production and pricing of oil shifted from the private sector to an alliance of thirteen governments in OPEC. The private companies had served as a link between the producing and consuming sectors of the world. The market was stable and adjusted to the ebb and flow of supply/demand imbalances without major price impact. When the OPEC nations were in control of pricing during the period of 1973-1979, the price of crude increased ten-fold. The resultant substantial decrease in demand and development of major new producing capacity in non-OPEC areas has caused another shift in crude pricing control. The current condition involves a larger number of overnments in and out of OPEC who have surplus producing capacity. The independent actions of producing governments during this period when no unified entity is in control will determine the stability and level of prices during the remainder of this decade.

The traditional factors affecting crude oil prices are such things as the current condition of balance, or imbalance, of supply and demand; the economics of business cycles and inflation; and the economic interests and strategy of the entities in control of spare producing capacity. During the upheaval in the world oil industry over the last 11 years, several new price-influencing factors have entered the picture. Some of them are the increased importance of the spot crude oil market; the advent of petroleum futures markets; the divergent social and political goals of the OPEC member nations, the United Kingdom, Norway, Mexico; and political unrest in several parts of the world.

When evaluating an exploration prospect or planning a development program, it is necessary to select a finite number for a crude price in the future. Such estimates are based on the best available information about the factors identified here. A future crude price estimate can and should be adjusted over time as conditions which influence the factors change. A regular update of the price estimate can provide insight for further decisions regarding the extent or timing of an ongoing investment program where such flexibility is available.

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