An Essay on the Estimate of U.S. Demand for Crude Oil

Date

2005-08

Authors

Liu, Chin-Yen A.

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Abstract

This paper investigates the structure of the global crude oil market and develops a model to examine U.S. demand for crude oil and to estimate the short-term price elasticity of demand for crude oil in the U.S. Historically, fluctuations in the price of crude oil have resulted from events of a political, economic, and/or financial nature. This paper describes five features of the world crude oi1 market that are important in understanding how this market functions: product characteristics, operation and refining, reserves and supply, demand, and price. Finally, this paper uses a modified form of the Nerlove lagged-variable model to predict U.S. demand for crude oil. The dependent variable in this model is U.S. per-capita demand for crude oil. The independent variables in this model include the real price of U.S. crude oil, U.S. per-capita real Gross Domestic Product (GDP), U.S. per-capita demand for crude oil lagged one year, and the U.S. energy-consumption-to-GDP ratio. The exponent of the price term in the model is a measure of short-term price elasticity of demand. Therefore, the model can be used to measure the short-term price elasticity of demand for U.S. crude oil. Additionally, this paper will examine the trend in short-term price elasticity of demand for U.S. crude oil, compare these values to previous estimates, and attempt to explain any deviations about the trend.

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Keywords

petroleum, industry, crude oil, prices

Citation

Liu, C. Y. A. (2005). An essay on the estimate of U.S. demand for crude oil (Unpublished thesis). Texas State University-San Marcos, San Marcos, Texas.

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