Alfred Joseph Cavallo is a physicist at US DOE Environmental Measurements Laboratory at New York City. He graduated from Stevens Institute of Technology and received his Ph.D. from University of Wisconsin. In addition to his interest in oil pricing, he has done research in fusion energy and wind energy at Princeton University, University of Maryland, Max-Planck Institute in Germany and Commissariat l'Energie Atomique in France. For his research in wind energy, he received the 1995 Wind Energy Pioneer Award of British Wind Energy Association.

It is evident that many critical components of a modern industrial economy depend on secure supplies of reasonably priced petroleum. The market price of this vital commodity is easily determined from the financial pages of many newspapers. Thus, we know what it costs, but do we understand why it costs what it does and why the price can fluctuate so dramatically? To begin, one can rationally determine the maximum and minimum price of oil from fundamental considerations like cost of production and the cost to find and develop new reserves, and the maximum possible tolerable price of oil to users. We can then examine the 1919-2000 US wellhead price of oil in 1996 dollars to see how a market actually functions and what if any relationship the market price has to the simple-minded ́minimum-maximum costî of petroleum.

Finally, one can look briefly at what expenditures are needed to provide secure supplies of this essential resource. Based on the lessons learned from these exercises, some fundamental conclusions will be drawn regarding the future of oil prices and US energy policy.