Competition in the US petroleum refining industry: empirical evidence and policy implications

Thesis/Dissertation · Wed Jan 01 04:00:00 EST 1986

OSTI ID:5301643

Powell, G L

The hypothesis is that the US petroleum refining industry is competitive, meaning refiners choose output quantities such that price equals marginal cost. A four equation model of the US gasoline and distillate fuel oil markets is constructed in order to test the competitive hypothesis. The model is linear under the null hypothesis of perfect competition, while oligopolistic behavior leads to nonlinear cross-equation constraints between supply and demand equations. Estimation under the null hypothesis was performed using the techniques presented in Hansen (1982), and a Lagrange multiplier test was used to test the competitive hypothesis against the noncompetitive alternative. Using the conclusion of a competitive market as a point of departure, the author proceeds to theoretically examine the key component of current US energy policy, the Strategic Petroleum Reserve (SPR). Three alternative SPR depletion policies are analyzed: spot sales, call options, and forward sales. A model is constructed to predict the different effects of these policies on private inventories, spot prices for crude oil, and refined product prices. The most basic result is that a spot sale of SPR oil during a supply crisis will result in both higher private inventories and a greater supply of refined products. Further results suggest the sale of call options will also lower present prices but that forward sales may actually raise current prices.

• Research Organization: Northwestern Univ., Evanston, IL (USA)
• OSTI ID: 5301643
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
020400* -- Petroleum-- Processing
020700 -- Petroleum-- Economics
Industrial
& Business Aspects
29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
294002 -- Energy Planning & Policy-- Petroleum
COMPETITION
ECONOMIC ANALYSIS
ECONOMICS
FUEL OILS
FUELS
GASOLINE
INDUSTRIAL PLANTS
LIQUID FUELS
MARKET
MATHEMATICAL MODELS
OILS
ORGANIC COMPOUNDS
OTHER ORGANIC COMPOUNDS
PETROLEUM PRODUCTS
PETROLEUM REFINERIES
RESERVES
RESOURCES
STRATEGIC PETROLEUM RESERVE