Is this a good sign, or just sensible, pragmatic thinking? John Hofmeister, who is the boss of the US division of Royal Dutch Shell told Retuers the company is working on the assumption oil will be trading between $30 and $40 a barrel in the medium term.
It bases this assumption on the belief the oil market is cyclical, and the highs of the last couple of years have just represented the up part of the cycle.
Some believe the day of peak oil is approaching. Peak oil is the idea that the Earth supplies of oil start to become exhausted, and global output starts to reduce. It’s a theory that markets have recently started to factor into the pricing of oil.
But, if Shell is right to make this assumption, then it would appear we are in for many more falls in the price of oil over the next few years - it fell again yesterday to a six month low.
On the other hand, of course, it’s good business practice to assume the price you get for your product will be lower than you really believe is likely. So maybe Shell is just being pragmatic.
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