Oil Market Outlook 2009

Philip K. Verleger, Jr and David Mitchell, University of Calgary

This paper provides an alternative view to the book Twilight in the Desert that argued that oil prices would become very high, possibly in perpetuity. Instead, it is suggested that world consumers will enjoy a new period of low oil prices thanks to the global recession, new regulatory programs, the failure of the U.S. auto sector, and the programs advanced by President Obama. However, it is acknowledged that the period of low prices will not last indefinitely. A key driver of future high prices, in the view of the author, relates to the new regulations limiting sulphur content in bunker fuels, which could impose significant constraints on the world’s refining industry, because they will lack the capacity to remove sulphur.