Comments on: What is the Fair Value of Oil?

By: Kevin

Kevin — Fri, 19 Dec 2008 23:15:36 +0000

I actually did work on this question, and a the fair price of a gallon of gas (when environmental impacts, traffic, and other negative externalities are considered) is above $6. Translating into your question’s terms, and considering that we were only at $4 per gallon when oil was $147/barrel, the socially optimal price is almost certainly above $100/barrel. As to the “fair” price, that’s a subjective call.

By: Flüge

Flüge — Wed, 26 Nov 2008 15:42:11 +0000

Hey… I think americans cannot complain on “high” oil prices. Here in germany we pay 1,5 € ( 2,2 dollar ) for one liter gasoline! How much do you pay? 1 dollar? So i think every american human must pay a ecological friendly car whithout huge uptake rates… Thats the right way.

By: fuel additives

fuel additives — Wed, 19 Nov 2008 18:57:59 +0000

I have to agree with Rob on this one, what we think the ‘fair price’ is doesn’t really matter. The market will take care of it. If the price is too high, demand will drop. If the price is too low, it will have to come up. So let the market do it’s thing, and that’s the fair price!

By: Chris

Chris — Tue, 11 Nov 2008 15:05:04 +0000

I think Chinese energy companies are a huge investment opportunity right now; APWR, for example, which builds and installs wind-based energy solutions across China’s mainland.

By: Paul Curto

Paul Curto — Mon, 10 Nov 2008 18:36:34 +0000

Based upon work I did back in the ’70′s, which predicted oil prices based upon supply and demand, the answer is between $90 and $150 per barrel.

Unless a new field is discovered, or a depression hits and kills all the economies, that is a reasonable guess. The pendulum already swung too low.

By: Rob

Rob — Fri, 07 Nov 2008 02:17:03 +0000

I didn’t participate in the survey because it’s a meaningless question. The fair value of oil is whatever price a willing seller can get from a willing buyer. That price is reflected in the market. That’s the fair price, no other price has meaning.

You could say “well, what does it cost to get out of the ground, and then what’s a fair mark up?” Are we talking about oil from Ghawar, the North Sea, Cantarell, where? OK, then use a weighted average of the extraction cost for all oil. Fine. Then what’s a “fair return?” Well, what’s the cost of capital, what’s the risk free rate in today’s environment, what is the risk premium, etc.? Hmmm… maybe the market price reflects all of this analysis.

Bingo

By: David

David — Thu, 06 Nov 2008 05:22:21 +0000

As much as I hate to say it, mainly because I like cheap, oil prices are too cheap. I would say that $100 per barrel is reasonable today. Why? Mainly because of availability and accessibility. Add to the fact, as mentioned in the article, the many other uses with oil for our daily life and the prevention of usage of our other natural resources like wood, hard to get and process metals, etc. Also, cheap equals waste, we tend to discard “things” when they are cheap.