Edward Morse, LCM Research

The presentation provides a detailed overview of what has happened within the oil markets over the last five years and what this may tell us about the outlook for the oil markets in the future; examined through three key questions and alternative views on them. Firstly, from a historical perspective, two different viewpoints are examined: 1) that 2003-05 was a turning point, the beginning of the end of the age of cheap oil and 2) that 2003-08 demonstrated normal unfolding of oil as a cyclical commodity. It is recognised that it is hard to weigh up which of these views is right. This question is examined in depth in respect to prices, demand response, capex needs and market impacts. The second question considers what is keeping prices within a $65-80 range, with a view that of the differing views put forward only financial flows can explain prices above $40-50. Finally, consideration is given to where prices may be heading in the next three years, with two dramatically different perspectives dominating thinking: firstly that prices will ratchet up annually until another supply crunch triggers another economic ricochet effect; secondly that prices will be range bound for the indefinite future (3-5 years). It is felt that the reality may lie with the second school of thought, or somewhere in between the two, although the medium term outlook looks more balanced.

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