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The Future of OPEC: Price Level and Cartel Stability

George Daly, James M. Griffin, and Henry B. Steele

Year: 1983
Volume: Volume 4
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol4-No1-4
View Abstract

Abstract:
In the wake of events associated with the Iranian revolution, the world price of oil increased from $15 to $32 per barrel. The Energy Modeling Forum's recent review of 10 world oil models shows virtual unanimity in holding that this price increase will be permanent and, indeed, that the real price of oil will increase in the future. The purpose of this paper is to seriously question the assumptions underlying such long-run projections-and hence the projections themselves. We conclude that the 1978-79 price hikes may prove to be a watershed event that effects fundamental changes in the long-run supply and demand for oil.



U.S. Gasoline Demand: What Next?

Badi H. Baltagi and James M. Griffin

Year: 1984
Volume: Volume 5
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No1-8
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Abstract:
Predicting the demand for motor gasoline over the last ten years has proven a most frustrating experience. Up until 1973, industry analysts felt considerable assurance in applying historical growth rates that averaged approximately 5 percent per year. Who in 1973 would have predicted that gasoline consumption in 1981 would fall below 1973 levels? For example, in 1973, Shell Oil Company predicted annual growth of 4.9 percent per year. Their forecasted value for the year 1981 exceeded the actual level by 42.7 percent (Shell, 1973). Unfortunately, errors of this magnitude are not as benign as predicting the point spread in a pro football game. To the contrary, both private and public policy decisions depend on the accuracy of such forecasts. Because of the importance of gasoline as the major refinery product, refinery expansion plans and retail marketing strategies are conditioned on such forecasts. Similarly, public policy decisions regarding auto efficiency standards, auto pollution controls, and oil import policy depend on gasoline demand forecasts. Current forecasts tend to be extremely pessimistic with respect to gasoline demand in the 1980s. Wharton Econometric Forecasting Associates predicts a 14.7 percent decline in motor-vehicle fuel demand over the decade of the 1980s; Exxon's Energy Outlook predicts a 15.6 percent decline over the decade. Is such pessimism warranted? Are there key assumptions, which if changed, could produce a substantially different picture?



Falling Oil Prices: Where Is the Floor?

James M. Griffin and Clifton T. Jones

Year: 1986
Volume: Volume 7
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No4-2
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Abstract:
The recent precipitous decline in world oil prices from $28 per barrel in November 1985 to $12 per barrel in March 1986 has perplexed most industry analysts and OPEC watchers. As oil prices continue to deteriorate, the central question now seems to be: "Is there a price floor below which oil prices will not fall; and if so, where is it?" Economic theory would suggest that at some price level, short-run marginal extraction costs of oil will eventually exceed marginal revenues from that production, leading to the widespread abandonment of the relatively higher-cost oil wells currently operated by competitive producers in non-OPEC areas. Presumably, once the price of oil falls to this floor, massive production cutbacks in high-cost, non-OPEC areas due to abandonment and reductions in new drilling activity would enable the lower-cost OPEC producers to significantly expand their market shares, thereby eliminating any incentives for further price reductions.



Methodological Advances in Energy Modelling: 1970-1990

James M. Griffin

Year: 1993
Volume: Volume 14
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No1-5
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Abstract:
Both the theory and practice of energy modelling have made phenomenal advances over the last 20 years. After providing a brief description of the state of energy modelling circa 1970, this paper identifies four major methodological advances profoundly affecting energy modelling. In the area of energy demand modelling, the translog and other generalized functional forms have proven readily adaptable to questions of interfuel substitution and energy/non-energy substitution. Additionally, discrete choice models, particularly the multinomial logit models, have provided a conceptually appealing framework within which to model appliance choice. The third advance has come in both the frequency and sophistication of use of panel data sets, which offer a much richer set of price and income variation. Finally, in the area of energy supply modelling, dynamic optimization models coupled with greater reliance on engineering information has lead to steady improvements in this area.



OPEC Production: The Missing Link

James M. Griffin and Lawrence M. Vielhaber

Year: 1994
Volume: Volume 15
Number: Special Issue
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-NoSI-7
View Abstract

Abstract:
The future of oil depends critically on the production decisions of OPEC, which in turn depend on a variety of factors internal and external to the cartel. This paper uses a simulation of the world oil market to compute the, payoff to OPEC members of alternative price and production profiles, focusing on the incentives to cooperate as well as to cheat. A "tit-for-tat" strategy by the, Saudis significantly reduces the incentives to cheat, but the payoff for cheating is still positive for the smaller OPEC producers. Accordingly, prices well below the cartel's joint profit maximizing level seem most likely.



Price Asymmetry in Energy Demand Models: A Proxy for Energy-Saving Technical Change?

James M. Griffin and Craig T. Schulman

Year: 2005
Volume: Volume 26
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No2-1
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Abstract:
It has become fashionable to believe that energy and oil demand respond asymmetrically to price increases and decreases. Unfortunately, the asymmetric price model utilized by Gately and others has the unintended by-product of producing intercept shifts in the demand function purely in response to price volatility. Thus what is in fact energy saving technical change is attributed to price asymmetry. The two become observationally equivalent. Furthermore, the asymmetric price model has the peculiarity of being dependent on the starting point of the data period so that parameter estimates are not robust across different sample periods. We demonstrate empirically using a panel of OECD countries for oil and energy demand that symmetric price responses cannot be rejected after explicitly controlling for energy saving technical change within a fixed effects model.



Testing for Market Integration: Crude Oil, Coal, and Natural Gas

Lance J. Bachmeier and James M. Griffin

Year: 2006
Volume: Volume 27
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No2-4
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Abstract:
Prompted by the contemporaneous spike in coal, oil, and natural gas prices, this paper evaluates the degree of market integration both within and between crude oil, coal, and natural gas markets. Our approach yields parameters that can be readily tested against a priori conjectures. Using daily price data for five very different crude oils, we conclude that the world oil market is a single, highly integrated economic market. On the other hand, coal prices at five trading locations across the United States are cointegrated, but the degree of market integration is much weaker, particularly between Western and Eastern coals. Finally, we show that crude oil, coal, and natural gas markets are only very weakly integrated. Our results indicate that there is not a primary energy market. Despite current price peaks, it is not useful to think of a primary energy market, except in a very long run context.



U.S. Ethanol Policy: Time to Reconsider?

James M. Griffin

Year: 2013
Volume: Volume 34
Number: Number 4
DOI: 10.5547/01956574.34.4.1
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Abstract:
This paper examines both the intended and unintended consequences of current U.S. ethanol policy. Originally, the 2007 legislation was intended to benefit consumers with lower gasoline prices, to reduce carbon emissions, and to promote oil security by displacing imported oil with domestically produced ethanol. While well-intentioned, the realized benefits have been minimal to consumers, the environment, and oil security. Alternatively, the unintended consequences on corn and other food commodity prices are having severe repercussions particularly in developing countries where consumers have more limited substitution possibilities. The extreme drought of 2012 illustrated the folly of mandating fixed quantities of ethanol use in gasoline, while allowing the residual to be left for food uses. It is time to reconsider and rescind the ethanol mandates.



Petro-Nationalism: The Futile Search for Oil Security

James M. Griffin

Year: 2015
Volume: Volume 36
Number: Adelman Special Issue
DOI: 10.5547/01956574.36.SI1.jgri
View Abstract

Abstract:
This paper takes the contrarian viewpoint that petro-nationalist oil security policies by oil consuming nations are likely to be ineffectual, very costly, and politically destabilizing internationally. Because the world oil market is one big bathtub, oil security is a public goods problem with a worldwide scope. Thus cooperative solutions are essential. Particularly troublesome are bilateral supply agreements and efforts to achieve oil autarky, which aim specifically at achieving a political or economic advantage vis-a-vis other oil consuming nations. These misguided actions are likely to trigger politically destabilizing oil resource competition among major oil consuming nations.





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