Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 1997:22: Economic Theory and the Supply of Oil

Ferdinand Banks ()
Additional contact information
Ferdinand Banks: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: This paper is concerned with four things. First, establishing the importance of the reserve-production ratio, and its significance relative to the 'life' of the oil reserves. Next, providing a simple derivation and discussion of Hotelling's theorem, while claiming its inadequacy for discussing physical as compared to financial assets. I then consider the short term pricing of oil presenting a simplified exposition of the 'convenience yield', and the part it plays in the term structure of oil prices. Finally, I take a look at a recent argument which claims that in reality there will not be an increased dependence of Middle East oil in the near or distant future. There is also a short conclusion in which some forecasts of the demand for oil in the years 2000 and 2010 are given.

Keywords: Reserve-produduction ratio; hotelling; convenience yield; oil reserves

JEL-codes: Q41

25 pages, August 15, 1998

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