Energy Politics

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Energy Politics
Issue XV1: Winter 2008
   

Table of Contents

Economics
Energy Policy and Ecomics’ Understanding Crude Oil Prices By James D. Hamilton

4

Government Business People

Nuclear Fuel Banks By Danila Bochkarev

37

Forecasts on Saudi Arabia Liquids Production By Jean Laherrere

62

Four Dozen Chinese Rigs are in te U.S. Land Market With Dozen More Planned By Kathy Kemper

82

Regular Features

Peak Oil and the Second Great Depression By Colin Campbell

85

Issue XV1: Winter 2008

3

 

   

Letter from the Editor    Editorial Board
   
      Jennifer I. Considine, Canada  Thomas Dawson, Canada   Keun‐Wook Paik, United Kingdom  Joy Dunkerley, United States of America  Bob Ebel, United States of America  Tony Reinsch, Canada  Angela Tu Weissenberger, Canada  Stephen O’Sullivan, Russia  Alex Kemp, Scotland  G. C. Watkins, Canada  Alpheus Jessup, United States of America  Gavin Longmuir, United Kingdom  Mamdouh G. Salameh, United Kingdom  Michael Lynch, United States of America  Colin Campbell, Ireland  William Kerr, Canada  Jean Laherrere, France  Roland George, Canada  John Roberts, United Kingdom  Richard Marshall, Canada  Thomas Walde, United Kingdom  Garth Renne, Canada  May Yeung, Canada   Peter Adams, United States of America  Barbara Baker, Canada  Len Coad, Canada  Edmilson Moutinho dos Santos, Brazil  Analyn Simber,Philippines     

Economics
Energy Policy and Economics Understanding Crude Oil Prices
James D. Hamilton This paper examines the factors responsible for changes in crude oil prices. The paper reviews the statistical behavior of oil prices, relates these to the predictions of theory, and looks in detail at key features of petroleum demand and supply. Topics discussed include the role of commodity speculation, OPEC, and resource depletion. The paper concludes that although scarcity rent made a negligible contribution to the price of oil in 1997, it may be an important feature of the most recent data.*I thank Menzie Chinn for helpful comments on an earlier draft. 1. Introduction.

 

How would one go about explaining what oil prices have been doing and predicting where they might be headed next? This paper explores three broad ways one might approach this. The first is a statistical investigation of the basic correlations in the historical data.

Issue XV1: Winter 2008

4

 

The second is to look at the predictions of economic theory as to how oil prices should behave over time. The third is to examine in detail the fundamental determinants and prospects for demand and supply. Reconciling the conclusions drawn from these different perspectives is an interesting intellectual challenge, and necessary if we are to claim to understand what is going on. Topics discussed include the role of commodity speculation, OPEC, and resource depletion. In terms of statistical regularities, the paper notes that changes in the real price of oil have historically tended to be (1) Permanent, (2) Difficult to predict, and (3) Governed by very different regimes at different points in time. From the perspective of economic theory, we review three separate restrictions on the time path of crude oil prices that should all hold in equilibrium. The first of these arises from storage arbitrage, the second from financial futures contracts, and the third from the fact that oil is a depletable resource. We also discuss whether commodity futures speculation by investors with no direct role in the supply or demand for oil itself could be regarded as a separate force influencing oil prices. In terms of the determinants of demand, we note that the price elasticity of demand is challenging to measure but appears to be quite low and to have decreased in the most recent data. Income elasticity is easier to estimate, and is near unity for countries in an Reconciling the conclusions drawn from these different perspectives is an interesting intellectual challenge, and...
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