OPEC and the Price of Petroleum: Theoretical Considerations and Empirical Evidence

ISBN-13: 9783642839283 / Angielski / Miękka / 2012 / 206 str.

Michael Rauscher

Opis

1. 1. Oil price fluctuations and their impact on economic performance Drastic oil price fluctuations have been a major characteristic of the world petroleum market since the beginning of the seventies. The oil crises of 1973n4 and 1979/80 were followed by a dramatic drop of the oil price during the first two quarters of 1986. Starting from a level less than 2 $ per barrel in 1972, the spot market price of Arabian Light crude oil increased to some 35 $ in 1980, then slowly decreased, and finally fell to 13 $ in 1986 (annual averages). If monthly data are considered, the peaks of the oil price movement look even more dramatic. In December 1980 Arabian crude was traded for more than 40 $ a barrel, and in August 1986 the price was down at 8 $ (see Fig. 1. 1). 40 30 20 10 r o 84 88 76 80 72 Figure 1. 1: The spot market price of Saudi-Arabian Light crude oil Data are taken from the Petroleum Economist and the OPEC Bulletin, various issues. 2 After the Second World War petroleum has become the most important energy resource. During the fifties and sixties its price was relatively low compared to other energy 2 sources like coal and firewood and it tended to drive them out of the market.

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Spis treści

1. Introduction.- 1.1. Oil price fluctuations and their impact on economic performance.- 1.2. Plan of the study.- 2. The world petroleum market: history and institutions.- 2.1. Petroleum as an exhaustible resource.- 2.1.1. Some basic concepts.- 2.1.2. Measurement of reserves.- 2.1.3. The development of production and reserves.- 2.1.4. The regional distribution of consumption, production, and reserves.- 2.2. The Organization of Petroleum Exporting Countries.- 2.3. The price of petroleum.- 2.3.1. Long-term contracts with fixed prices.- 2.3.2. The spot market.- 2.3.3. Netback contracts.- 2.3.4. Futures markets for crude oil and petroleum products.- 2.3.5. Petroleum prices and scarcity.- 2.4. A brief history of the world petroleum market.- 2.4.1. The oil market before OPEC.- 2.4.2. Alteration of property rights.- 2.4.3. New contractual relationships.- 2.4.4. OPEC and the oil price in the seventies and eighties: A chronology of events.- 2.5. Summary of some stylised facts.- 3. The price of petroleum in economic theory.- 3.1. Types of oil market models.- 3.2. The economic theory of exhaustible resources.- 3.2.1. The Ricardian approach.- 3.2.2. A simple model of exhaustibility.- 3.2.3. Different market structures.- 3.2.4. The resource-exporting country.- 3.2.5. Uncertainty.- 3.2.6. Testing Hotelling’s model.- 3.3. Parameter changes in the standard model.- 3.3.1. The size of the resource stock.- 3.3.2. Changing property rights.- 3.3.3. Cartelisation.- 3.3.4. The backstop technology.- 3.3.5. Additional variables.- 3.4. Approaches without exhaustibility.- 3.4.1. The impact of GDP fluctuations.- 3.4.2. The backward-bending supply curve.- 3.4.3. Static monopoly theory.- 3.4.4. Lagged demand reactions.- 3.4.5. Downstream activities.- 3.4.6. Some empirical models of oil price determination.- 3.4.7. Is OPEC a cartel ?.- 3.5. An evaluation.- 4. An intertemporal model of OPEC’s pricing policy.- 4.1. Basic assumptions.- 4.1.1. Consumption, foreign assets, and the resource stock.- 4.1.2. Demand for petroleum.- 4.1.3. Petroleum supply from non-OPEC sources.- 4.1.4. The literature on dynamic monopoly models.- 4.2. Necessary conditions of optimality.- 4.3. The consumption path.- 4.4. Accumulation of foreign assets and the existence of an optimal solution.- 4.5. The price path.- 4.5.1. The long-run equilibrium price.- 4.5.2. The effects of parameter changes.- 4.5.3. Second-order conditions.- 4.5.4. Behaviour near the equilibrium.- 4.5.5. A numerical example.- 4.6. The equilibrium in the long run.- 4.7. An evaluation of the model and its results.- 5. A simplified version of the model.- 5.1. The assumptions.- 5.2. Optimality conditions.- 5.3. The optimal pricing policy.- 5.3.1. The long-run equilibrium.- 5.3.2. Behaviour near the equlibrium.- 5.3.3. The long-run optimal path.- 5.4. Imperfect information and the occurrence of price shocks.- 5.4.1. The first and second oil shocks.- 5.4.2. Declining oil prices in the eighties.- 5.4.3. Heterogeneity of OPEC and endogenous price cycles.- 5.5. Theoretical results and the empirical oil price cycle: a comparison.- 6. An econometric model of the world petroleum market.- 6.1. Objectives of the investigation.- 6.2. OPEC and oil price fluctuations.- 6.2.1. A rule-of-the-thumb approach to determining the oil price.- 6.2.2. The interaction of supply and demand.- 6.3. Empirical results.- 6.3.1. Specification of equations.- 6.3.1.1. Demand.- 6.3.1.2. Non-OPEC supply.- 6.3.1.3. The price of petroleum.- 6.3.2. Estimation results.- 6.3.2.1. Concavity and convexity.- 6.3.2.2. Demand for petroleum.- 6.3.2.3. Non-OPEC supply of petroleum.- 6.3.2.4. OPEC behaviour and price adjustments.- 6.3.3. Summary of the empirical results.- 6.4. Optimal pricing policies in the empirical model.- 6.4.1. Misspecification of adjustment processes.- 6.4.2. Adjustment processes and long-run demand and supply functions.- 6.4.3. Long-run equilibrium prices and quantities.- 7. Final remarks.- 7.1. Summary and conclusions.- 7.2. A remark on policy implications.- 7.3. Areas of future research.- Appendix: Optimal control theory.- A.1. The problem.- A.2. Necessary and sufficient conditions.- A.3. Saddle points and the stability of optimal solutions.- References.