Sunday, March 10, 2013

World oil demand and supply

A recent OECD study of the world oil market investigates price and volume changes up till the year 2020. The study does not estimate a truly global demand function but works on the basis of regional aggregates. The graph below derived from Fournier, J. et al. (2013), “The Price of Oil – Will it Start Rising Again?”, OECD Economics Department Working Papers, No. 1031, OECD Publishing. shows the impact of the 2008/9 crisis and assumes that world growth after being a broadly stable 2011-2012 will recover.

While the growth trajectory has a small confidence interval the oil price predictions are less accurate and depend on risk premium and the elasticities of income and price. The price development over the  simulation period could be almost stable to a treefold increase.

The price path also illustrates nicely the pre-crisis sharp increase due to (perceived) scarcity and the impact of the crisis.

Book: Sections 3.3 pp. 33-34 and 12.3, pp. 144-146.

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