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Politics : High Tolerance Plasticity
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To: upanddown who wrote (5203)6/10/2001 3:06:22 AM
From: energyplay  Read Replies (1) of 23153
 
Barron's interview is must read & keep ! -

"Seeks extreme volatility" -

Absolutely key info -

First, we
think that Saudi Arabia changed its oil policy in 1997 from one that sought [price]
stability at about $18 to one that actually seeks extreme volatility. Saudi Arabia has two
objectives: revenue and market share. They need a price of oil that is high enough to at
least balance their budget. At the same time, they want to secure market share over the
life of their reserves, which is conservatively stated at about 100 years.
These are opposing objectives: a high price will help revenues but undermine their
share, as it will stimulate rapid investment in exploration and development of oil and of
alternative energy supplies. The low price helps share but hurts revenues.
The only way they can achieve both is to average the price they need -- but to do it
with high volatility, because that creates uncertainty. If you measure volatility as the
percentage change from one average price to the next, year-to-year, then in the last 15
years average volatility has been 20%. In the last five years, it's been 33%, and in the
last three years, it's been 40%. Oil prices are getting more and more volatile.

This means deeper & probably FASTER cycles to play with. More chance for everyone on these threads
to make really big bucks !!

Well, at least one more cycle until everyone adjusts to Saudi Arabia's game.
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