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The Clumsy Cartel

M.A. Adelman

Year: 1980
Volume: Volume 1
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No1-5
View Abstract

Abstract:
The recent price explosions in the world oil market result from the tardy recognition of the post-1973 consumption slowdown. Such odd results could not happen in a competitive market, but they are not at all strange in the world of the cartel. An analogy may help explain. A diver in the sea cannot go lower than the sea floor, nor higher than the water's surface. He is nearly weightless, and can float at any depth between these extremes, but the slightest impact or effort sends him up or down. Similarly, in any market, the price cannot drop below incremental cost, since such a drop would choke off supply, nor can it rise above the level that would maximize profit to a monopoly, since the monopoly would gain by putting the price back down. But in a once-competitive market, where the price has been rising toward some unknown monopoly optimum, the price can hold steady or can move drastically up or down in response to very slight impulses. In this range the price may show no response, or even a perverse response, to changes in demand. Since 1973, price response has been perverse. This was clearly the case in 1974, as the world headed into recession. It is so again in 1979.During 1973-1978, real incomes in the non-Communist indus-trialized countries rose 13 percent, but oil use nevertheless was flat at approximately 50 million barrels daily (MBD). Exports



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.



An Unstable World Oil Market

M. A. Adelman

Year: 1985
Volume: Volume 6
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No1-4
View Abstract

Abstract:
There is a permanent surplus because huge low-cost reserves are available for development. The cartel keeps them undeveloped to maintain the price. Their power is great, but they are a "clumsy cartel" and sometimes overreact to produce a shortage. Hence the future is cloudy and threatening, like the recent past.



Pricing Policies of an Oil Cartel with Expectation of Substitute Producers

Majid Ahmadian

Year: 1988
Volume: Volume 9
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol9-No1-10
View Abstract

Abstract:
The proposition that the net price in a competitive market and the net marginal revenue in a monopolistic market rise at the rate of interest was first demonstrated by Hotelling (1931) for a non-durable exhaustible resource. However, Levhari and Liviatan (1977) and Fisher (1981) have shown that Hotelling's r-percent rule is not valid when extraction costs rise with cumulative production. This r-percent rule also applies to a perfectly durable resource when the resource is produced in a competitive market. It does not apply in the case of a monopolistic market.



OPEC's Energy Policy

Fadhil J. Al-Chalabi

Year: 1989
Volume: Volume 10
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No2-2
View Abstract

Abstract:
Oil prices have fluctuated widely over the past few years. Today (4 July 1988) the price of North Sea Brent is less than US $14 per barrel, compared with OPEC's reference price of $18/bbl, which is based on a basket of seven crudes. This means that the price of Brent is nearly $5/bbl lower than the official selling price, if we take Nigerian Bonny Light (one of the seven crudes) as being equivalent to Brent. This is well below the average price of 1987, when OPEC was able to stabilize the market at around the targeted $18/bbl. Nevertheless, it is much higher than the price in 1986, when prices crashed below $10/bbl - and yet less than half the prevailing price in 1985. Thus, the fluctuations are very wide; much wider than anyone in the oil industry expected before 1985.



Mideast Governments and the Oil Price Prospect

M.A. Adelman

Year: 1989
Volume: Volume 10
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No2-3
View Abstract

Abstract:
The Mideast oil-producing nations are the heirs of the multi-national oil companies whom they gradually expropriated, starting around 1950. They have inherited the companies' problem: repressing investment and production.



OPEC Behaviour Under Falling Prices: Implications For Cartel Stability

Clifton T. Jones

Year: 1990
Volume: Volume 11
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No3-6
View Abstract

Abstract:
The surprising extended decline in real oil prices during the 1980s has raised the question of OPEC's continued viability as a price-setting cartel. In response, Griffin's (1985) tests of alternative hypotheses about OPEC behaviour performed over a period of generally rising prices (1971:1-1983:III) are repeated for the more recent period of falling prices (1983:IV-198R�1V), yielding the same general conclusions: most OPEC members continue to behave in a 'partial market sharing" way, while most non-OPEC oil producers do not. Thus the evidence suggests that recent oil price reductions are more the result of deliberate output adjustments by the cartel than the unintentional outcome of a breakdown in cartel discipline on the way to eventual collapse.



The 1990 Oil Shock is Like the Others

M. A. Adelman

Year: 1990
Volume: Volume 11
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No4-1
View Abstract

Abstract:
First I will set out what happened to prices in 1990, then review the long term prospects in the light of the change.Challenge and responseSince 1912, and the first shipments out of the Persian Gulf, the world price of oil has been far above the fording/developing cost of creating new reserves. The result is a huge excess of potential production, which the owners must somehow dam up to maintain the price.Since the OPEC nations took over 20 years ago, the process has been much more turbulent. First, their chief instrument for price-raising has been to provoke a crisis, or take advantage of one. Second, there has usually been not only potential excess supply but actual excess producing capacity. This makes the high price even more insecure.



OPEC and the Price of Oil

Robert Mabro

Year: 1992
Volume: Volume 13
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No2-1
No Abstract



Modelling World Oil Supply

Morris A. Adelman

Year: 1993
Volume: Volume 14
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No1-1
View Abstract

Abstract:
David Wood and I had many conversations on this subject, and he encouraged me to prepare a paper for a September 1989 session of the Energy Modelling Forum. It has been enlarged and rewritten, to incorporate working and published papers completed since then, thanks in no small measure to David Wood's friendship and support.




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