The Next Oil Price Crash

The Next Oil Price Crash

SIGNAL HILL, CA - MARCH 5: Pumps draw petroleum from oil wells through the night in Signal Hill, ... [+] California. (Photo by David McNew/Getty Images) With all the talk of $100 or $200 oil in the near future, it's important to remember that forecasts are never more than guesses and that almost anything is possible. M. I. T.'s Morry Adelman once compared the oil price to a fish, which could rise above the ocean's surface, but only briefly, and never go below the seabed. The surface was the long-run marginal cost and the seabed was the short-run marginal cost. An alternative version of that came from Fereidun Fesharaki, who coined the term 'hatrack theory' of prices, which held that at any given time, the price could be higher or lower on the 'hatrack' with the same fundamentals. Generally speaking, market psychology is a major factor affecting prices and traders tend to move in a herd. In a bull market, an increase in OPEC production will be interpreted as a reduction in spare capacity, and thus cause prices to move up. In a bear market, higher OPEC production will be seen as raising inventories and thus be expected to push