DIY Oil Analysis

1) Will the current, relatively high price of oil encourage energy conservation, easing the growth of demand — or will consumers just pay the extra price and keep driving their SUVs? Assuming that supplies remain constant, the continued growth in demand means prices move higher.

2) Will supplies continue to move through the global distribution system without interruption from terror attack, hurricane, pipeline mishap, etc.? If any link in the supply chain snaps, factor in price spikes accordingly.

3) Will oil production continue to rise as new oil discoveries come on line faster than older oil fields are depleted? Or will the pace of discovery and development fall behind the rate of depletion of existing productive oilfields? If production keeps up with demand, shave your price forecast accordingly. If not, bet on prices going up.

4) How much oil is under the ground in Saudi Arabia? Can Saudi producers make good on their claims to be able to continue to provide enough extra supply to meet global demand growth for the foreseeable future? Or, as some industry watchers suspect, are they hiding serious problems with existing reserves that could soon bring a production decline?

5) How rapidly will the economies — and oil consumption — of developing countries like China and India continue to grow? Will they begin "cooling" to a growth track similar to developed countries like the U.S.? Or will their demand for oil continue to expand at the current rate indefinitely?

If you want to give your forecast a professional look, come up with a formula assessing the impact of these risks on your price model. Plug them into a spreadsheet and tweak it constantly. You might even be able to charge people a fee subscribe to your updates. If so, congratulations: you’re an oil analyst.