ABSTRACT
The past fifteen years have demonstrated how strongly corporate and government decisions are influenced by expectations of future oil prices. Many analysts have pointed out that investment, research and development (R&D), and regulatory decisions are strongly affected by highly uncertain and often erroneous estimates of future prices. Uncertainty about future prices imposes substantial risks on energy decision makers. The price policy that the core perceives to be in its own best interest is the price path that maximizes the present value of future profits from oil production. Interest rates have a profound effect not only on producers but also on consumers. High real interest rates retard economic growth and thereby retard oil consumption, and low real interest rates have the opposite effect. A critical demand issue is whether Lesser Developed Countries (LDCs), particularly those in the Pacific Basin and Latin America, will continue their industrialization in an oil-intensive fashion.
