The September attacks on oil facilities in Saudi Arabia re-ignited discussion of the “risk premium” in the oil price. Since the risk premium is not directly observable, we have created a methodology to estimate it indirectly. Our model found that, based on supply and demand fundamentals, oil prices should actually be higher than they are now. We think that fears of a severe economic downturn have created a risk discount in the price, but that this should shrink in 2020 as the global economy avoids recession.
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