Changing Oil Price Expectations

Abstract

Knowledge of oil price expectations is useful to both energy producers and consumers alike. The returns on long-term energy and conservation investments depend on future prices as does the revenue and hence the standard of living of energy producers. The economic and technical advantages of oil over alternative fuels in many applications as well as its widespread availability have meant that the price of oil has retained its position as the prime influence on the entire range of energy prices. The importance of expectations, coupled with the remarkable movements witnessed over the past 16 years have constantly exposed the conventional wisdom on oil prices to critical examination and not a little cynicism. Brown describes the persistence after 1982 of the belief in an ‘era of ever rising oil prices in the face of declining world oil demand’ as due to ‘the benefit of free advice from many large institutions including the major oil companies’. (Brown 1987) This chapter examines the contribution of expectations surveys to this issue and in particular the Surrey Energy Economics Centre’s survey of April 1988.