May 12, 2006

Yes to a floor, but go for a roof too!

Sir, Philip Gordon, May 12, suggests creating a “price floor” for oil in order to diminish the risk of developing alternatives but he could also argue it as a “price floor” applicable to oil as that would allow oil producers to invest without the risk of having its prices below those ten dollars per barrel that most thought as given late 1998. And if at it why does he not go for a roof too? I am sure that oil producers, in exchange for a reasonable floor, would also be willing to offer a nice roof to the consumers. 40 years binding purchase and supply agreements, at a price of $40 per barrel plus or minus 50% of the difference to the market spot price, would provide the producers with a floor of $30 if the spot price hits $10, and conversely a roof of $ 70 dollars to the consumers if the spot rises to $100.

Sent to FT, May 12, 2006