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The Price of Oil and Conflict in OPEC

Abstract:
The price-setting behavior of the oil-exporting nations is influenced by the various elasticities of demand for and supply of oil, and the long-run optimal price trajectory is also influenced by the rate of interest and reserves (see, for example, Pindyck, 1978, and Reza, 1981). Since it is generally agreed that the long-term price elasticity exceeds the short-term elasticity (in absolute value), measuring the latter can give a clearer picture of the former. The short-term price elasticity of demand for OPEC oil is also of interest because short-term financial constraints have apparently led at least some members of OPEC to weigh the short-run outcome of their pricing decisions more heavily. The issue addressed here is the magnitude of the short-run price elasticity of the demand for oil supplied by the OPEC core (Saudi Arabia, Kuwait, the United Arab Emirates, and Qatar) and of OPEC as a group.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Security and Geopolitics – International Energy Organizations

JEL Codes: Q38: Nonrenewable Resources and Conservation: Government Policy, Q47: Energy Forecasting, Q41: Energy: Demand and Supply; Prices, Q35: Hydrocarbon Resources, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels

Keywords: Oil prices, OPEC, Conflict, World oil demand

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No2-2


Published in Volume 5, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.