Rystad Energy has over the last year developed a model to give a more realistic simulation of the cyclical behaviour of the oil price.
The model has correctly predicted the oil price increase seen over the last months. Now it shows that the oil price will be highly volatile going forward, but also that a swing producer can stabilise the market if the right heuristics are applied. The model is based on system dynamics, which is a mathematical approach to model the nonlinear behaviour of complex systems based on feedback loops and time delays.
The key findings are as follows:
- In an unregulated market, the system dynamics approach shows that oil prices can be expected to remain highly volatile in a steady four-year cycle.
- Contributions from the shale industry will exaggerate the cycles rather than dampen them.
- Swing producers could manage to stabilise oil prices mainly within the range of US$60 – 90 per barrel if the reaction time is fast enough and if spare capacity is sufficient.
- All else being equal, lower variability of the oil price, due to its economic and strategic importance, is regarded as positive insofar as it helps to stabilise the global economy.
The report gives a detailed description of the methodology used, scenarios tested and the heuristics needed for a swing producer to dampen oil price volatility.
The report can be downloaded here.
Read the article online at: https://www.hydrocarbonengineering.com/refining/10102018/new-research-shows-that-oil-markets-could-be-stabilised/
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