• 1 day U.S. On Track To Unseat Saudi Arabia As No.2 Oil Producer In the World
  • 1 day Senior Interior Dept. Official Says Florida Still On Trump’s Draft Drilling Plan
  • 2 days Schlumberger Optimistic In 2018 For Oilfield Services Businesses
  • 2 days Only 1/3 Of Oil Patch Jobs To Return To Canada After Downturn Ends
  • 2 days Statoil, YPF Finalize Joint Vaca Muerta Development Deal
  • 2 days TransCanada Boasts Long-Term Commitments For Keystone XL
  • 2 days Nigeria Files Suit Against JP Morgan Over Oil Field Sale
  • 2 days Chinese Oil Ships Found Violating UN Sanctions On North Korea
  • 2 days Oil Slick From Iranian Tanker Explosion Is Now The Size Of Paris
  • 3 days Nigeria Approves Petroleum Industry Bill After 17 Long Years
  • 3 days Venezuelan Output Drops To 28-Year Low In 2017
  • 3 days OPEC Revises Up Non-OPEC Production Estimates For 2018
  • 3 days Iraq Ready To Sign Deal With BP For Kirkuk Fields
  • 3 days Kinder Morgan Delays Trans Mountain Launch Again
  • 3 days Shell Inks Another Solar Deal
  • 4 days API Reports Seventh Large Crude Draw In Seven Weeks
  • 4 days Maduro’s Advisors Recommend Selling Petro At Steep 60% Discount
  • 4 days EIA: Shale Oil Output To Rise By 1.8 Million Bpd Through Q1 2019
  • 4 days IEA: Don’t Expect Much Oil From Arctic National Wildlife Refuge Before 2030
  • 4 days Minister Says Norway Must Prepare For Arctic Oil Race With Russia
  • 4 days Eight Years Late—UK Hinkley Point C To Be In Service By 2025
  • 4 days Sunk Iranian Oil Tanker Leave Behind Two Slicks
  • 4 days Saudi Arabia Shuns UBS, BofA As Aramco IPO Coordinators
  • 4 days WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 4 days Norway Grants Record 75 New Offshore Exploration Leases
  • 5 days China’s Growing Appetite For Renewables
  • 5 days Chevron To Resume Drilling In Kurdistan
  • 5 days India Boosts Oil, Gas Resource Estimate Ahead Of Bidding Round
  • 5 days India’s Reliance Boosts Export Refinery Capacity By 30%
  • 5 days Nigeria Among Worst Performers In Electricity Supply
  • 5 days ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 5 days Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 6 days Saudis To Award Nuclear Power Contracts In December
  • 6 days Shell Approves Its First North Sea Oil Project In Six Years
  • 6 days China Unlikely To Maintain Record Oil Product Exports
  • 6 days Australia Solar Power Additions Hit Record In 2017
  • 6 days Morocco Prepares $4.6B Gas Project Tender
  • 6 days Iranian Oil Tanker Sinks After Second Explosion
  • 8 days Russia To Discuss Possible Exit From OPEC Deal
  • 8 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
Alt Text

Soaring Indian Oil Demand Grabs OPEC’s Attention

As Indian oil demand continues…

Alt Text

Oil Prices Book Biggest Weekly Loss Since October

Oil prices retreated somewhat this…

Ferdinand E. Banks

Ferdinand E. Banks

Ferdinand E. Banks, Uppsala University (Sweden), performed his undergraduate studies at Illinois Institute of Technology (electrical engineering) and Roosevelt University (Chicago), graduating with honors in…

More Info

Model, Model: Who’s Got an Oil Market Model

Model, Model: Who’s Got an Oil Market Model

I had hoped to give a provocative lecture on the economics of nuclear energy at the forthcoming international meeting of the International Association for Energy Economics in wonderful summer Stockholm, but on the basis of what might happen in North Africa and the Middle East in the coming months, I suspect that I will be asked  by the conference directors  to  fall back on one of my oil market recitals.
The problem is that I have no new model. Several years ago a former student of mine at the University of Grenoble (France), who had ascended to better days, gratuitously informed me that a long paper of mine on natural gas was of little value because of the absence of a “model”.

I’m not sure that he was correct, however it was hardly an accusation worth a great deal of reflection on my part, and so I dismissed it with a condescending smile on my face. I knew then, as I know now, that the real world oil and gas market games, if I can call them that, have very little to do with the  formal economics and econometric models of the kind I had to suffer when a graduate student, and which on later occasions I wore out my patience and vocal chords when teaching at a dozen universities around the world.

In his survey of non-cooperative game theory, Professor David Kreps (1990) says that a good test of the usefulness of game theory is to compare the forecasting success of economists who use game theory with the achievements of those who abstain. This sort of thing might involve persons who approach the future of oil prices via models, as compared to those who use basic business acumen, or for that matter street-corner common sense.

As Professor Kreps makes clear, this would not be a very easy experiment to carry out, but where oil is concerned, I think that we can go at least part of the way. For many years – if not decades – I  was a fanatic reader and teacher of the learned energy literature, and of the huge number of papers on oil that I  examined in the mostly unread economics journals that collect dust and take up valuable space in  academic libraries, I can only remember a few that I felt inclined to recommend to my students.
 I received a question about my cavalier demeanour  from several of the students in my course on oil and gas economics at the Asian Institute of Technology (Bangkok), to which I replied that if they were desperate to read the kind of pretentious analyses in the kind of learned journals  they  encountered in their academic backgrounds, or would encounter later in life,  they would have to do so without my assistance. I might have added that any curiosity they may have about oil market and oil prices would be completely satisfied by the highly relevant lectures I was giving, and which I expected them to learn perfectly.

But on the other hand, going back 15 years, I probably mentioned that best paper that I encountered on oil was by Richard Teitelbaum in the business publication Fortune (1995). Four multi-millionaires, and later billionaires, were cited as going ‘long’ in oil properties. These were Philip Anschutz, Marvin Davis, Carl Icahn and Richard Rainwater. Of this cash-strong foursome, Mr Anschutz declined to be interviewed, however I was informed that he was the kind of investor who preferred to let his money do his talking, since it was an open secret that he had participated in several big-ticket shopping missions in the oil and gas markets.

The other gentlemen were very much up front as to why investors should take a bullish attitude toward oil. In fact the late Mr Davis supplied one of my favourite quotations on this subject: “You don’t have to be a cockeyed genius to see this coming.” Mr Rainwater was also explicit about his estimate of  the oil future: “The increased global demand paints a picture for me that doesn’t have any other outcome. The price of oil is going to have to come up.”

The interesting thing about these investors is that all of them were cognizant of the demand for oil that would be forthcoming in China and India, and long before this matter was considered a worthy topic for mainstream energy economics publications, conferences and those drowsy academic seminars where amateurs do their songs-and-dances while clutching their lightweight ‘scientific’ contributions as if they were the gold to which an English economist once compared them. Everyone is now talking about China and its requirements, but few observers realize that India is also going to have a huge appetite for oil. Any decline in the Chinese demand will be more than compensated for by the increase in Indian consumption.

The interesting thing here is that the four gentlemen mentioned above increased their activities in the petroleum markets when the price of oil was zooming down, and even Sheikh Yamani was informing anyone who would listen that oil would soon be in the same situation as the stones that he seemed to think were so valuable during the Stone Age. For readers who have forgotten, he was expressing his curious belief that oil exporters should sell their oil for bargain-basement prices, because  substitutes for oil would soon become widely available.

As in my lectures in Bangkok and Paris (2010), I now insist that the key to the present  oil market is the behaviour of OPEC. I promote that controversial belief every chance that I get, because with or without a model, that is the way  things are playing out in the oil market just now. This outlook has been questioned by many participants in the forums to which I contribute, which immediately leads me to suggest that they examine the dynamics of the oil market in 2009. In that year, with the international macro and financial markets on the verge of a total meltdown, OPEC was able to  bring the oil price back from 32 dollars per barrel to almost 70.  No conventional model would have predicted that.

 In summer Stockholm, where the curse of electric deregulation will still be threatening many households, and ruining some, lecturers at the energy meeting mentioned earlier will likely be examining half-baked academic constructions – or models as they are commonly called –  that might feature a development of oil prices whose moderation will  shield the global macroeconomy from another rendezvous with the brink of ruin. I think that I will abstain from these fantasies, and suggest that you do the same.

By. Professor Ferdinand E. Banks


Banks, Ferdinand E. (2011). Energy and Economic Theory: Singapore, London
            and New York: World Scientific
_____. (2011). A modern survey of world oil: realities and delusions. To be
            published by UNESCO (Paris).
_____. (2010) Oil and economics theory: some chronological and mathematical
             aspects.  Lecture given in Uppsala and Paris.
_____. (2006).  Logic and the oil future. ‘Energy Sources’.
_____. (2000). Energy Economics: A Modern Introduction. Boston and
            Dordrecht: Kluwer Academic.
Kreps, David M. (1990) Game Theory and Economic Modelling. Oxford:
             Clarendon Press.
Teitelbaum, RichardS. (1995). ‘Your last big play in oil’. Fortune (October 30).

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News