ABSTRACT
This chapter provides a brief examination of three important topics in energy economics: the relation between energy and the macro-economy; futures markets; and the long term supply of oil. Over a period of only a few months — from the end of 1985 to March 1986 — the spot price of oil fell from about 30 dollars/barrel to 14 dollars/barrel, and occasionally dipped below this level. In fact ‘future′ oil has sold for an average of about 12 dollars/barrel, and on occasion has fallen below 10 dollars/barrel. It is reasonable to expect a slight recovery in the price of oil, and expectations are that the price will eventually stabilise somewhere between 15 and 20 dollars/barrel, however it is generally believed unlikely that the oil price will regain its 1984–5 level during the present decade. The world has, at least temporarily, been returned to an era of inexpensive oil, and the main question now is what do we have a right to expect from this unexpected but delightful bounty.
