Oil Price to be Highly Volatile Going Forward
A model that has “correctly predicted the oil price increase seen over the last months” now shows that the oil price will be “highly volatile” going forward, according to Rystad Energy.
The independent energy research and business intelligence company said it developed the model over the last year “to give a more realistic simulation of the cyclical behavior of the oil price”. Rystad Energy also stated that the model shows that a swing producer can stabilize the market “if the right heuristics are applied”.
The company says the model is based on system dynamics, which is a mathematical approach to model the nonlinear behavior of complex systems based on feedback loops and time delays.
“I’m very happy to see that our model is able to capture the price behavior we actually see in the market,” Rystad Energy CEO, Jarand Rystad, said in a company statement.
“Traditionally, oil market predictions have been based on linear forecasting of supply and demand. The dynamic element generating the cyclicality of the business has been very difficult to capture in a mathematical model,” Rystad added.
“Thus, I think this has been a real achievement. Instead of being surprised by the roller-coaster nature of the oil market, we can now understand such behavior and even model how the most volatile price cycles could be mitigated,” he continued.
Jo Husebye, a partner in Rystad Energy, said the company has seen that only if a swing producer can react fast enough, and with sufficient spare capacity and willingness to alter its production levels significantly, potential oil price spikes and downturns could be dampened and corresponding volatility be reduced.
Brent Crude Oil has increased from around $70 per barrel in August to highs of over $86 per barrel in October. WTI Crude Oil has risen from around $65 per barrel in August to highs of over $76 per barrel this month.
Earlier in October, Rystad Energy stated on its website that it sees increased likelihood of a larger cut in Iranian exports than its 900,000 barrel per day (bpd) loss estimate.
“Rystad Energy observes that the Iranian crude exports dropped materially for the second month in a row in Sep-18. At 1.7 million bpd for Sep-18, Iranian crude exports are 450,000 bpd below pre-sanctions (average between May 2017 and February 2018) levels of 2.15 million bpd,” Rystad Energy said in a statement posted on its website on October 5.
Headquartered in Oslo, Norway, Rystad Energy has locations in Houston, Singapore, London, New York, Sydney, Moscow, Stavanger, Rio de Janeiro, Tokyo, Dubai and Bangalore.
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