Petroleum Economic and Oil field management Essay - 1

Petroleum Economic and Oil field management - Essay Example The economics of non-OPEC supply, the economics of supply of other liquids and the investment and production decisions of OPEC countries will definitely influence the spot price over the next three months. For other liquids and petroleum, the main long-term prices and supply determinants can be summed up in four main categories that include other liquids supply economics, non-OPEC supply economics, global demand for other liquids and petroleum, and OPEC production and investment decisions (Elton, Gruber, Agrawal & Mann, 2004: 27247). Factors that should influence PMC while deciding on whether to enter into a forward or spot contract should include the consideration of the deference between the forward and spot prices in the sense that the two-price difference preferably should be equivalent to any earnings and finance charges that are due to the contract holder. In addition, opting for the forward contracts mainly would depend on factors like, festivity, season, and climate cycles that mostly affect the demands. A factor that would discourage the use of forward contracts is the lack of explicit mechanism for processing new information on the production costs and inventory surprises. Another factor to consider will be oil market participants who are a diverse group and trade at different maturities and objectives. The varying degrees in the involvement of major commercial oil producers will affect this decision. In terms of spot prices, supply and demand will influence such a decision. When demand goes up and sup ply decreases, the spot prices are automatically expected to go up. Likewise when demand decreases and supply goes up, the prices should go down. Spot prices for both crude oil and petroleum product prices are likely to be affected by events that disrupt the flow of these products in the market. This may include weather-related and geopolitical factors. These should be considered in the decision of whether to use spot prices or not. By taking