Forecasting the Time Evolution of the Oil Price During Months of Negative Inflation Rate

Abstract

Mass conservation equation is employed to study the time evolution of the mass of oil in a reservoir, according to the actual mass flow rate of extraction. It is also possible to define the critical mass flow rate of extraction, which is the value exhausting the reservoir in an infinite time. The evolution with time of the price of the resources extracted and sold to the market is investigated in case of no-accumulation and no-depletion of the resources, i.e., when the resources are extracted and sold to the market at the same mass flow rate. The total energy conservation equation is transformed into a money or capital per time conservation equation, which allows to study the price evolution with time, which is dependent on the following parameters. The price evolution with time of the extracted resource is dependent on the parameter PIFE, “Price-Increase Factor of Extracted resource,” which is the difference between the basic interest rate of the capital, e.g., the inflation rate, and the mass flow rate of extraction. The price evolution with time of the sold resource is dependent on the parameter PIFS, “Price-Increase Factor of Sold resource,” which is the difference between the interest rate of the capital, e.g., discount or prime rate, and the mass flow rate of extraction. The parameter CIPS, “Critical Initial Price of Sold resource,” depends on the initial price of the extracted resource, on the interest rate of nonextracted resource, and on the difference between PIFS and PIFE. The parameter CIPES, “Critical Initial Price Extreme of Sold resource,” depends on the initial price of the extracted resource, on the interest rate of nonextracted resource, and PIFS. The time evolution of the oil price during the 8 months of 2009, when the inflation rate was negative, and following the economic crisis of 2008, is investigated introducing a new category of cases, i.e., the negative inflation rate one. The paper presents and discusses the results of the forecasting for different values of the interest rate of the capital, i.e., prime and discount rate, with the conclusion that the present theory can forecast the evolution of the oil price with a reasonable confidence using the prime and the discount rates as extreme limits.