Our Approach is Innovation

ESAI has emerged as a market leader in energy market research, analysis and price forecasting because we have consistently sought innovation. As the global oil market has evolved over time, our approach to understanding that market has evolved in step.

Indeed, since 1984, ESAI has studied the physical oil market in great detail. As is well known, the physical oil market is shaped by a combination of economic and political factors. Political developments are as varied as tax legislation and foreign policy, and ESAI has a long history of analyzing the impact of government policy on the economic developments of the physical market. More recently, ESAI has teamed with the Institute for Foreign Policy (www.ifpa.org) to provide a more detailed and proprietary understanding the market impact of political developments, especially developments in the Persian Gulf.

In addition, our research has addressed not only traditional economic analysis such as the global oil balance and the call on OPEC, but has also led us to develop new models and better techniques for assessing relative supply and demand and linking that assessment to the future price of oil. Those new techniques have included ESAI's Global Crude Oil Balance^tm, ESAI's regional refiner purchasing, and ESAI's refiner producibility.

Ironically, our exploration of the physical market began precisely when OPEC was abandoning fixed pricing, the liquidity of the spot markets was taking off, and the forward and futures markets were beginning to come into their own. It is not surprising then that even with the most comprehensive assessment of the physical market, we have often found a gap between the supply/demand signals of the market place and fluctuations in the price of oil. This gap has grown significantly since the 1991 Gulf War as more and more non-traditional buyers and sellers of oil have entered the market. The price of oil is no longer determined by producers, refiners and consumers alone. It is also shaped by financial institutions and large (and increasingly not so large) speculative investors. We believe the commoditization of oil is here to stay until or unless the supply of oil once again becomes centralized within the control of a few producers as it was in the 1970s.

As the twentieth century came to an end, therefore, the key to understanding oil markets was the integration of two kinds of expertise: knowledge of the physical supply and demand and understanding of the behavior of the non-traditional market participants. Moreover, it required an ongoing effort to develop physical oil market analysis techniques that go beyond traditional supply/demand analysis and embrace the commoditization of oil and the opportunities it presents. With the start of the new century, commoditization is clearly not the final phase of the global oil market's evolution. The Internet itself is changing the conduct of the oil industry. Likewise, BTU-convergence from the deregulation of energy markets all over the world is revolutionizing the relationship between oil, natural gas and power. ESAI will continue to innovate in the field of market research, analysis and forecasting to continue to serve its clients in the ever-changing markets for energy.