Given the current slump in oil prices it’s a bit ill-timed, but the people at Clingendael, the Dutch equivalent of the Council on Foreign Relations, have a new report out arguing that:
Until recently, the oil price was largely underpinned by the marginal cost of the last barrel needed to match demand, with some political and economic conjuncture mark-ups or -downs. As will be presented in this paper, the current high oil prices are still primarily driven by structural factors that can be well explained without resorting to blaming speculative investors playing the futures market or the low dollar. But if prices are heading towards $200 a barrel in 12 months’ time, or for that matter even to $150 a barrel, other drivers will gain prominence over marginal costs as the main driver. In that case, OPEC will have accomplished a long-held wish: oil will then be priced at its real value in the Western world (for instance the economic value of mobility for consumers, or the value of plastic components or cargo transportation). Such a new price regime, pricing at the “User Value”, also implies that the oil price will not necessarily invite new supply into the market, since income requirements of producing countries (especially OPEC member states and Russia) will be easily met through price rather than volume.
I’m having trouble getting my mind around this explanation; it seems sort of anti-economic. But the economists haven’t been particularly good at forecasting oil prices lately. What think you, o commentariat?