demand for petrol and supply -...

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Demand for petrol/ diesel and macro-  economic determinants Presentation to SHELL 3 May 2006 Dr. Nicola Theron Linette Ellis
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Demand - theory Demand generally a function of: Price of product Price of related products Income Population Tastes Other factors (N) Price elasticity of demand Income elasticity of demand ...) , , , , ( N T Y Py Px f D =
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Petrol/ diesel demand - literature Drollas - early reviews of price and income elasticity in 1984 (published in ‘Energy Economics’). US studies: “[w]hile a range of estimates are found in the literature, the consensus view is that the long run price elasticity of demand is around -0.8 while the long run income elasticity is slightly below unity”. (Graham & Glaister, 2002:2). Some studies (Blum et al, 1988) found larger ranges for some European countries, with income elasticity varying between 0.86 and 1.90. Sterner (1990) used pooled data for OECD countries and found long run income elasticities of between 0.6 and 1.6. With another technique (time series data), he found the income elasticity to vary between 1.1 and 1.3. Later work by Goodwin (1992) generally found that elasticity estimates had to be revised upwards from estimates calculated between the 1980s and 1990s.
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International Income Elasticity for Fuel  ( Graham & Glaister, 2002:7  ) Country Income Elasticity Short run Long run Canada 0.12 0.53 US 0.18 1.00 Belgium 0.63 1.25 France 0.64 1.23 Italy 0.40 1.25 Portugal 0.37 1.93 Switzerland 0.85 1.54 Japan 0.15 0.77 Turkey 0.65 1.29
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Summary data on price and income  elasticity  (Dahl & Roman (2004))   Price elasticity (short run) Price elasticity (long run) Income elasticity (short run) Income elasticity (long run) DIESEL Mean -0.13 -0.67 0.55 1.13 Standard deviation 0.22 0.75 0.84 0.82 Minimum value -0.88 -2.63 -0.93 -0.19 Maximum value 0.31 0.22 3.32 3.00 Number of studies 27 27 26 26 PETROL Mean -0.13 -0.61 0.25 0.69 Standard deviation 0.11 0.55 0.35 0.67 Minimum value -0.46 -2.47 -0.37 -1.46 Maximum value 0.25 0.88 2.03 2.68 Number of studies 70 112 71 114
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SA and middle-income countries India (Ramanathan, 1999). Short run income elasticity of 1.18 and a long run income elasticity of 2.68 – might be explained by low level of fuel consumption in India and the gradual increase in economic growth. South Africa: Source Short term price elasticity Long term price elasticity S.A. Cloete & E.v.d.M.Smit (1988) -0.25 -0.37 S.D. Ngumeni (1994) -0.1 to -0.2 Bureau for Economic Policy Analysis (BEPA, 1989) -0.31 Bureau for Economic Research (2003) Petrol: Diesel: -0.21 -0.51 -0.18 -0.06 Income elasticity (BER) (2003) Petrol: Diesel: 0.15 0.88 1.3
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Philips curve (inflation vs. unemployment –  US (1960s))
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US – 1970-2000
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US – Inflation (more persistent)
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Expectations augmented Philips curve (US  1970-2000)
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SA – Structural changes Stable Macro economic environment GEAR ASGISA; Monetary policy – Inflation targeting regime Fiscal policy – Fiscal discipline Deficit as ratio of GDP: 2006/07 (-1,5%); 2007/08 (-1.4%); 2008/09 (-1.2%).
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