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Reserves and Reserve Production Ratios In Imperfect Markets

Abstract:
Recent changes in reserves or reserve/production ratios are often cited as evidence of hypothesized economic changes in petroleum markets. However, the technology of petroleum production and the fact that international petroleum markets are not perfectly competitive combine to render incorrect interpretations all too easy. Both market imperfections and technical limitations to production rates slow market adjustments to changes in expected prices or costs. This makes it difficult to use observed changes in reserve/production ratios as evidence of some hypothesized economic change, since neither of the observations used to get the observed change may have been close to the then-prevailing long run equilibrium.

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Energy Specializations: Petroleum – Exploration and Production; Petroleum – Markets and Prices for Crude Oil and Products

JEL Codes:
D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
L13 - Oligopoly and Other Imperfect Markets

Keywords: Reserve production ratios, Oil reserves, Oil production

DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No2-12


Published in Volume 10, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.