By Stephen Langton, Forth Capital
There has already been much written on falling oil prices, so here is a little more. However, I won’t be looking at the merits or not of this price fall, nor be trying to predict the effect on inflation, global growth and economic policy.
Instead I will take a brief historic look at real oil prices to try and see what may or may not be considered as normal.
So what is the normal price of oil? Or what has the average inflation adjusted price of oil been?
Like many people I know about the post war prices of $1.63 per barrel and the peak of $147 but what did these translate to in real terms. Here is a look at real prices over the decades:
| 1946 to 1954 | $25 |
| 1955 to 1964 | $24 |
| 1965 to 1974 | $24 |
| 1975 to 1984 | $70 |
| 1985 to 1994 | $35 |
| 1995 to 2004 | $30 |
| 2005 to 2014 | $80 |
| 2015 | $50 |
There were two periods where OPEC producers had control of peak supply: 1974 to 1984 and 2004 to 2013. During these times prices averaged around three times higher than at other times.
The advent of the mass production of shale oil in the US has tipped the balance of supply power away from OPEC again.
The extraction of vast quantities of US shale oil, easily and relatively cheaply accessible is crucially also easily turned on and off. Could this be a key reason for the return to historically more normal pricing? Could it also be the reason for the theories of combined Western attempts to undermine the Russian economy or the theory of Saudi attempts to take out US shale producers in order to buy them cheaper later thus regaining control of supply.
The normal price would therefore seem to be somewhere in the $30 to $80 dollar range depending on where the balance of supply power lies.
One reason that the peaks and troughs will be significantly higher and lower than the averages is trading and human nature. We have recently been in the height of a bull market in oil. As in all bull markets, the bull view is that the ever higher price is the new norm. Projects previously unthinkable become realistic and rational thinking departs….to be replaced with explanations and a commitment that it will be different next time.
To find out more about Oil Prices and their affects on the Global Markets, we invite you to join us at our Geneva seminar on Tuesday 27th January.
Author's bio
Stephen Langton has been working in financial services since 1988 working for both small investment companies as well as major institutions such as Royal Bank of Scotland and SEB. Having lived for seven years in South East Asia and seven years in France, Stephen has a good appreciation of the financial issues faced by expatriates.
For much of the last ten years Stephen has provided advice to retired expatriates living in France. A new member of the Forth Capital team, Stephen is delighted to be back living close to the mountains, where he will have ample opportunity to ski!
