This article presents the results of a series of exercises in the use of small-scale models to explain the spot price of crude oil. Small scale modeling-the use of a limited number of equations-involves a number of disadvantages: many interesting questions will have to be ignored and often a sense of realism may be sacrificed. However, small-scale models are an essential part of economic research. Compared to large, multi-equation models, small-scale models are often transparent-causal relations are clearly visible. In addition, small-scale models can often be easily updated and reexamined in the light of new information or assumptions. This is particularly important in policy-making when time and clear communication are at a premium.
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