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The Future of OPEC: Price Level and Cartel Stability

In the wake of events associated with the Iranian revolution, the world price of oil increased from $15 to $32 per barrel. The Energy Modeling Forum's recent review of 10 world oil models shows virtual unanimity in holding that this price increase will be permanent and, indeed, that the real price of oil will increase in the future. The purpose of this paper is to seriously question the assumptions underlying such long-run projections-and hence the projections themselves. We conclude that the 1978-79 price hikes may prove to be a watershed event that effects fundamental changes in the long-run supply and demand for oil.

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Energy Specializations: Petroleum – Policy and Regulation; Energy Modeling – Forecasting and Market Analysis

JEL Codes: Q38: Nonrenewable Resources and Conservation: Government Policy, Q47: Energy Forecasting, Q42: Alternative Energy Sources, Q35: Hydrocarbon Resources, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels

Keywords: OPEC, Cartel stability, World oil supply and demand, Forecasting

DOI: 10.5547/ISSN0195-6574-EJ-Vol4-No1-4

Published in Volume 4, Number 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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