Connect with us

Hi, what are you looking for?


Fossil Fuels

Oil Prices Respond Quickly To Supply Changes

Originally published on The Lenz Blog.
By Karl-Friedrich Lenz

The Institutional Investor Group on Climate Change is an association of European investors representing  €13 trillion in assets.

It has just published a report titled “Investor Expectations of Oil and Gas Companies – Transition to a lower carbon future.

This document consist of a short introduction describing the economic and policy environment for oil and gas, with a view to climate change. That is followed by a set of questions for the boards of such companies.

I found one figure in the introduction very interesting. On page 5 they say that the 60% decline in price compared to 2014 oil prices was caused by a mismatch of supply and demand of only 2%.

Very small changes in supply have a very strong influence on oil prices.

That’s good news for the basic idea discussed here, Phaseout Profit Theory. That idea is: Oil companies should have an active interest in regulation limiting supply, since it increases their profits from selling oil and the valuation of their oil fields.

The above figure adds an important factor. It is not necessary to reduce supply by a large percentage to achieve big price increases. On the other hand, oil companies need to curb supply faster than demand is going down anyway (from electric vehicles, efficiency and the other factors discussed in the report). If supply overshoots demand by even a small percentage, that has devastating effects on price.

I hear that the US oil industry lost $67 billion last year.

It is obvious from basic market theory that reducing supply means higher prices. But this new information shows that on the oil market even a small reduction (say around 5% of present oil supply) has dramatic effects.

Reprinted with permission.

Appreciate CleanTechnica’s originality and cleantech news coverage? Consider becoming a CleanTechnica Member, Supporter, Technician, or Ambassador — or a patron on Patreon.

Don't want to miss a cleantech story? Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!

Have a tip for CleanTechnica, want to advertise, or want to suggest a guest for our CleanTech Talk podcast? Contact us here.
Written By

We publish a number of guest posts from experts in a large variety of fields. This is our contributor account for those special people, organizations, agencies, and companies.


You May Also Like


The price of a gallon of gasoline is surging, putting a strain on drivers’ pocketbooks. While prices at the pump seem extreme, we’ve been...

Fossil Fuels

Middle Eastern oil producers are worried that more people will buy EVs in light of the high oil prices. Iraq’s oil minister, Ihsan Abdul...

Clean Transport

Originally posted on EVANNEX. By Charles Morris The transition to electric vehicles and renewable energy is already creating winners and losers. We write about the winners...

Clean Transport

Even from this short-term crisis, IHS Markit expects no real return to "normal," at least not soon. "However, about one third of the volumes...

Copyright © 2021 CleanTechnica. The content produced by this site is for entertainment purposes only. Opinions and comments published on this site may not be sanctioned by and do not necessarily represent the views of CleanTechnica, its owners, sponsors, affiliates, or subsidiaries.