That is the oil market can be viewed as a single pool

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Unformatted text preview: il DDW 2012 1 The oil markets are a global pool – Everybody buys and sells through it Wirl, Faculty of Business, Economics and Statistics, University, 12 Franz Wirl, Faculty of Business, Economics and Statistics, University, 12, [“OPEC’s Strategies,” http://www.springerlink.com/content/w37411k763748224/] E. Liu The first important characteristic of the world oil market is that one can speak of a global oil market in spite of differences in quality (primarily gravity and sulfur content) and transport costs. That is, the oil market can be viewed as a single pool which is fed by all suppliers and from which all consumers lift at the same ‘oil price’. This distinguishes oil from the other energy carriers natural gas, coal and electricity where geography plays a crucial role such that price differentials can be substantial; these differences widen for renewables. Even natural gas markets have strong regional disparities between Europe—the gas price is entirely pegged to oil and refined product prices—and North America where prices are currently decoupled from oil prices and move closer with coal. 57 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Supply and demand for oil is global Borenstein, E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business, Co-Director of the Energy Institute at Haas, and Director of the University of California Energy Institute, 08 Severin Borenstein, E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business, Co-Director of the Energy Institute at Haas, 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 The international wealth transfers from oil price changes also have geopolitical impact. While some confused observers cite figures about the geographic source of the oil that is consumed in the U.S., the worldwide integration of the oil industry means that all oil demand pushes up the price of all the world’s oil and benefits all sellers of oil. It doesn’t matter how much oil the U.S. buys from the Middle East or Venezuela, only how much oil it buys from the world market (including domestic production). 58 Oil DDW 2012 1 ***Market Flooding IL*** 59 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Discourage Substitution 60 Oil DDW 2012 1 Saudi Arabia will set a price that discourages oil alternatives Cairns, Department of Economics and Calfucura, 10 Robert D. Cairns, Department of Economics at CIREQ McGill University and Enrique Calfucura, 10, [“OPEC: Market Failure or Power Failure?,” www.cireq.umontreal.ca/resenv/2010h/calfucura.pdf] E. Liu It is in the interest of Saudi Arabia to maintain a price that can be sustained by the industrialized countries without a deep recession (which reduces demand) in the short run, and that also minimizes the incentive to find alternatives to conventional oil in the long run (cf. Morse 2009). The reason is that Saudi Arabia w...
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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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