Crude oil has been the most internationally traded commodity since the 1960s. It accounts for about 20% of the total value of world trade. Today, and in the foreseeable future, oil is and will remain the most important source of energy in the world. Besides its importance, oil is deemed as a special commodity due to its nonrenewable resource nature, and its militarily strategic factor. Furthermore, the supply of oil is concentrated in the hands of a few producers. Much of the total oil production comes from the Middle East countries where international politics and religious conflict were significant contributors to the two oil crises in the 1970s.
Given the importance and the uniqueness of oil, its price has been of great concern to all parties involved. The main purpose of this book is to analyze and forecast the price of crude oil up to the year 2020. In order to achieve this objective, this book is divided into three parts, including eight chapters. Part I (chapters one to three) illustrates the theoretical background of oil pricing models and reviews comprehensive literature. Part II (chapters four to five) describes oil market behavior up to 1991 in terms of supply-side analysis and demand-side analysis. Part III (chapters six to eight) contains a Bayesian econometric model for oil price forecasting up to the year 2020. The prior forecasted price from the International Energy Workshop at Stanford University is integrated with that derived from a simultaneous equation model under a Bayesian method.
The major findings of this book are:
1.Based on a constant price in 1985, the current world oil average price is as low as that of 1973. If the foreign exchange rate is considered, the oil price in Taiwan today is even lower than that of 1973, since the Taiwan dollar vs. the U.S. dollar rate has changed from 40:1 (previous) to 25:1 (today).
2.According to the forecasting results of this study, the oil price in year 2000 is likely to be US$ 13.66/barrel in 1985 constant dollars, and US$24.22/barrel in year 2020. The authors argue that the international oil market is quasi-competitive from a long-range viewpoint. Therefore, Taiwan should moderately utilize oil (petroleum) and should not reduce oil consumption to a large extent.
3.The probability for a third oil crisis is extremely low up to the year 2020.
