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Long term oil prices

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  • Haugom, Erik
  • Mydland, Ørjan
  • Pichler, Alois

Abstract

In this paper we propose a model to estimate and simulate long term oil prices. Our model is based on properties of demand and supply for oil and it is able to reproduce historical real oil prices well. We use the model to estimate and simulate future real oil price scenarios. The results show that if we are not able to significantly increase demand elasticity, the yearly real oil price change can reach 12% in the years following the peak production level without taking a scarcity rent into account. Until peak production level is reached, the long term real oil price changes stemming from fundamental supply and demand changes are expected to be negative. Our simulation results based on an expected peak production year of 2020 and a scarcity rent of 3% suggest an expected real crude oil price of $169/bbl in 2040. For comparison the EIA outlook predicts a real oil price of $141/bbl for the same year. We also provide an on-line Appendix that allows the readers to change the assumptions underlying our analysis and see the results immediately.

Suggested Citation

  • Haugom, Erik & Mydland, Ørjan & Pichler, Alois, 2016. "Long term oil prices," Energy Economics, Elsevier, vol. 58(C), pages 84-94.
    • Handle: RePEc:eee:eneeco:v:58:y:2016:i:c:p:84-94
    DOI: 10.1016/j.eneco.2016.06.014
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    References listed on IDEAS

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    Cited by:

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    2. Gonzalo Cortazar & Cristobal Millard & Hector Ortega & Eduardo S. Schwartz, 2019. "Commodity Price Forecasts, Futures Prices, and Pricing Models," Management Science, INFORMS, vol. 65(9), pages 4141-4155, September.
    3. Gonzalo Cortazar & Cristobal Millard & Hector Ortega & Eduardo S. Schwartz, 2016. "Commodity Price Forecasts, Futures Prices and Pricing Models," NBER Working Papers 22991, National Bureau of Economic Research, Inc.
    4. Winchester, Niven & Ledvina, Kirby, 2017. "The impact of oil prices on bioenergy, emissions and land use," Energy Economics, Elsevier, vol. 65(C), pages 219-227.
    5. Shumin Jiang & Jingtao Guo & Chen Yang & Zhanwen Ding & Lixin Tian, 2017. "Analysis of the Relative Price in China’s Energy Market for Reducing the Emissions from Consumption," Energies, MDPI, vol. 10(5), pages 1-13, May.
    6. Sofia Dahlgren & Jonas Ammenberg, 2021. "Sustainability Assessment of Public Transport, Part II—Applying a Multi-Criteria Assessment Method to Compare Different Bus Technologies," Sustainability, MDPI, vol. 13(3), pages 1-30, January.
    7. Zhou, Fan & Page, Lionel & Perrons, Robert K. & Zheng, Zuduo & Washington, Simon, 2019. "Long-term forecasts for energy commodities price: What the experts think," Energy Economics, Elsevier, vol. 84(C).
    8. Cheng, Fangzheng & Fan, Tijun & Fan, Dandan & Li, Shanling, 2018. "The prediction of oil price turning points with log-periodic power law and multi-population genetic algorithm," Energy Economics, Elsevier, vol. 72(C), pages 341-355.
    9. Siddiqui, Atiq W. & Basu, Rounaq, 2020. "An empirical analysis of relationships between cyclical components of oil price and tanker freight rates," Energy, Elsevier, vol. 200(C).

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    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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