D candidate at the school of public affairs

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Unformatted text preview: aas, and Director of the University of California Energy Institute, 1-08, [“Cost, Conflict and Climate: U.S. Challenges in the World Oil Market,” Center for the Study of Energy Markets, http://escholarship.org/uc/item/68h502tt] E. Liu Americans can and should respond to these challenges, but it is important to understand the potential impact of these responses in the context of the world oil market. The policies generally proposed to address oil issues–e.g., increasing fuel economy of automobiles, opening more domestic land for oil exploration, or replacing 10% of gasoline in the U.S. with biofuels– if carried out only in the U.S. would have fairly modest effects on the world market and , in particular, on the world price of oil. Increasing U.S. fuel economy by 40%, from 25 to 35 miles per gallon, if it caused no increase in total miles driven, would lower oil consumption by about 3.6 million barrels per day, about 17% of today’s U.S. oil consumption. While that would create substantial direct savings, such a gradual reduction over more than two decades–the change that is implied by the provisions in the 2007 energy bill once one accounts for the fact that U.S. automobile fleet turnover is under 8% per year– would have a small, possibly unnoticable, demand between 2003 and 2005. By 2020, this would likely be less than 3% of daily demand. Replacing 10% of U.S. gasoline with biofuels would have a still smaller impact on price, and would not offer the direct financial savings that would result from improved fuel economy. There are many pros and cons in the debate over these policies, but claims that they will significantly alter the world oil market are not well founded. 185 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 No Flooding – Can’t Control Prices 186 Oil DDW 2012 1 Saudis can’t set oil price – It’s no determined by OPEC or normal market dynamics Pierce, Ph.D. candidate at the School of Public Affairs, University of Colorado, 12 Jonathan J. Pierce, Ph.D. candidate at the School of Public Affairs, University of Colorado, Denver, 1-5-12, [“Oil and the House of Saud: Analysis of Saudi Arabian Oil Policy,” Digest of Middle East Studies Volume 21, Issue 1, pages 89–107, Spring 2012, http://onlinelibrary.wiley.com/doi/10.1111/j.1949-3606.2012.00128.x/abstract] E. Liu According to Paul Stevens (1997a), “The key lies in the existence of excess capacity to produce crude oil. Whoever has control of that excess capacity has the power to make prices in the market” (p. 86). The Saudis have the largest excess capacity of oil in the world. This allows them to have the greatest administrative capability to influence the price of oil, but even they cannot control the price. There are two simplistic and opposing answers to the question of who controls the price of oil. One approach argues that the oil producers, particularly those belonging to OPEC, set the price of oil. The opposing position is that the market freely determines the price of oil through fully autonomous and pure ec...
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This note was uploaded on 01/30/2013 for the course ECON 101 taught by Professor Burke during the Spring '13 term at Southern Arkansas University.

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