Oil industry frets about another possible lost decade

London

OIL is an inherently cyclical business. The point is remarkably simple but it is amazing how often it gets forgotten by forecasters and investors.

In the century and a half since the modern oil industry was founded with the drilling of Edwin Drake's well in 1859, real prices have doubled in the space of three years on no fewer than six separate occasions, and halved on four.

If prices remain around US$50 for the rest of the year, 2015 will be the fifth time real prices have fallen more than 50 per cent in the space of less than three years.

Sharp price changes over short periods have therefore been the norm and the long period of relative stability between 1931 and 1969 was the exception.

It follows that any attempt to predict where prices will go in the medium term (two to five years) or long term (beyond five years) based on current prices or recent changes is bound to fail.…