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OPEC At Thirty Years: What Have We Learned?

OPEC At Thirty Years: What Have We Learned? MONOPOLY THE ONLY TENABLE HYPOTHESIS I It is best or at least expedient to start an economic inquiry by assuming that the initial price level, and changes, reflected competitive supply and demand. It would follow that price corresponded to marginal cost, short- or long-run as appropriate. Applied to an inquiry concerning the world oil market in the past 30 years, these assumptions conflict with all the data. In 1970, the Persian Gulf oil price reached an all-time low of $1.21 per barrel. It had been declining for decades, and was down in real terms by about 85% from thc 1949 level. But it was still far above the long-run competitive level. In Saudi Arabia (and its neighbors were not too dissimilar), lifting cost was about 5 ccnts. Onc barrel of daily capacity brought $442 per year [($1.21 -.05) x 365], for years to come. The discounted value of such a revenue stream is several thousand dollars, but required about $80 in develop­ ment investment. At a discount rate of 20%, this came to about 4 cents per barrel. We must also add the value of the undeveloped barrel: resource rent, or user cost. It needs some careful examination. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Annual Review of Environment and Resources Annual Reviews

OPEC At Thirty Years: What Have We Learned?

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Publisher
Annual Reviews
Copyright
Copyright 1990 Annual Reviews. All rights reserved
Subject
Review Articles
ISSN
1543-5938
DOI
10.1146/annurev.eg.15.110190.000245
Publisher site
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Abstract

MONOPOLY THE ONLY TENABLE HYPOTHESIS I It is best or at least expedient to start an economic inquiry by assuming that the initial price level, and changes, reflected competitive supply and demand. It would follow that price corresponded to marginal cost, short- or long-run as appropriate. Applied to an inquiry concerning the world oil market in the past 30 years, these assumptions conflict with all the data. In 1970, the Persian Gulf oil price reached an all-time low of $1.21 per barrel. It had been declining for decades, and was down in real terms by about 85% from thc 1949 level. But it was still far above the long-run competitive level. In Saudi Arabia (and its neighbors were not too dissimilar), lifting cost was about 5 ccnts. Onc barrel of daily capacity brought $442 per year [($1.21 -.05) x 365], for years to come. The discounted value of such a revenue stream is several thousand dollars, but required about $80 in develop­ ment investment. At a discount rate of 20%, this came to about 4 cents per barrel. We must also add the value of the undeveloped barrel: resource rent, or user cost. It needs some careful examination.

Journal

Annual Review of Environment and Resources – Annual Reviews

Published: Nov 1, 1990

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