Abstract
This chapter focuses on markets for crude oil and oil products including gasoline, kerosene, diesel, heating oil, as well as biogenic fuels such as biodiesel, bioethanol, and synthetic fuels. Since the mid-twentieth century, crude oil has been the world’s most important energy source. However, the future prospects of crude oil are more unclear than ever. A lot of issues have to be analyzed:
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What is the development of oil extraction?
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What technical and economic consequences are to be expected if conventional crude oil extraction falls short of the demand for liquid fuels?
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What about the so-called peak oil hypothesis from an economic perspective?
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At what oil prices would alternative fuels, such as unconventional oils, biogenic fuels, and liquefied coal become competitive?
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How can the structure of the oil industry be explained in economic terms?
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What is the role of governments in exporting and importing countries?
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What are the influences on the price of oil in the short, medium, and long term?
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What is the relationship between spot and future prices?
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To what extent are oil prices influenced by speculation?
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Notes
- 1.
These figures are based on an exchange rate of 1.30 USD/EUR and current cost structures of refineries. With these assumptions and a crude oil price of 60 USD/bbl, the wholesale price of gasoline is about 0.35 EUR/l and that of diesel, about 0.34 EUR/l. Note that one liter of biodiesel contains the energy equivalent of 0.9 l of conventional diesel (see Table 8.7).
- 2.
The value-creating units of vertically integrated companies are nowadays often organized as profit centers in order to prevent this disadvantage.
- 3.
For example, representatives of the Detroit Board of Commerce voiced grave concerns about the future of crude oil supply at a 1906 Senate hearing in Washington DC.
- 4.
Indonesia left OPEC in 2009 because it became a net importer of oil.
- 5.
Ecuador left OPEC in 1992 due to restrictive production quotas and high membership fees but rejoined in 2007. Gabon left OPEC in 1992, also due to restrictive production quotas and high membership fees.
- 6.
The posted price is the sales price set by the government of the exporting country, who uses it for calculating the tax to be paid by oil companies. If this tax rate is high, e.g. 80%, the posted price in fact determines the cost of crude to companies.
- 7.
Based on an evolutionary approach, Axelrod (1984) examines the conditions that make cooperation rather than non-cooperation the stable equilibrium outcome. One such condition is that participants expect a high (infinite) number of iterations of the game.
- 8.
The British company BP and the French company CFP were previously state-owned but are now in private ownership.
- 9.
Another way to transfer income and wealth to select groups is to regulate the sales prices of private or public companies. In the present context, this alternative becomes important only once a public company is in charge of providing oil products to consumers.
- 10.
Without privatization, national oil companies can become dependent on the know-how of foreign private companies.
- 11.
One of the exceptions is Erdmann (1995). His study is based on a non-linear stochastic simulation model that successfully forecast the end of low crude oil prices in the 1990s.
- 12.
If arbitrage exists, arbitrageurs can perform risk-free trades. Their role can therefore be compared to that of the error correction term in cointegration models.
- 13.
Oil prices need not to fall if speculative capital is withdrawn from oil markets. Rather, traders with an interest in holding physical quantities of oil may step in to replenish their stocks. It therefore may take some time for an oil price bubble to burst.
- 14.
While in Europe diesel vehicles have a large market share, they do not play a substantial role in the United States.
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Zweifel, P., Praktiknjo, A., Erdmann, G. (2017). Markets for Liquid Fuels. In: Energy Economics. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-53022-1_8
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