THE FUTURE OF WORLD OIL PRICES - SMOOTH GROWTH OR VOLATILITY

Most oil price projections since 1974 and until recently have shown smooth growth. This contrasts with actual developments, in particular the recent collapse of world crude oil prices, which surprised both policymakers and analysts. This paper discusses different approaches and paradigms for price projections and for rationalizing past oil price movements. In particular, the explicit consideration of the dynamics of the energy markets, ie the sluggish behaviour of both consumers and competitive fringe producers, provides a suitable framework for explaining the recent evolution. This framework suggests that considerable (price) volatility will characterize the future world oil market. © 1990.