Trying to understand oil price fluctuations is like trying to solve the riddle “Which came first? The chicken or the egg?” According to OPEC, oil market prices are as low as they will go. OPEC’s Secretary-General Abdulla al-Badri looked into his crystal ball and said prices will explode in the near future. Okay. Maybe, but would we expect anything less than that from a man who makes his living producing oil?
Abdulla al-Badri thinks the oil market is in the process of self-correcting itself. Oil companies have cut costs, and that means lower oil production. Lower oil production plus an increase in demand would usually equal higher prices, but remember this is the oil business. That business seems to defy all the laws of sound economics, or at least it looks that way.
As Lee Slaughter understands, the main reason oil prices change lies in the boardrooms where the investment game is played. The Secretary-General says under-investment in oil development means higher oil and gas prices. New oil fields must be established in order to replace fields that are not producing as expected. Oil fields around the globe experience a 5% decline in production every year, so new fields are needed to maintain production.