Inventory optimization in the US petroleum industry: empirical analysis and implications for energy emergency policy

Technical Report · Mon Aug 01 04:00:00 EDT 1983

OSTI ID:5797714

Hubbard, R G; Weiner, R

This paper starts from the observation that the rapid increases in the price of crude oil during two of the last three supply disruptions can be attributed in part to increased private inventory demand stimulated by expectations of still higher prices (and hence speculative profits) in the future. To examine this phenomenon, we develop an optimizing model of inventory behavior in the petroleum industry and test it on United States data. Government intervention in any future disruption is likely to take the form of releases from the Strategic Petroleum Reserve (SPR). Given that the SPR accounts for but a small fraction of US oil inventories, the reaction of the private sector is critical in evaluating its impact. We incorporate inventory behavior in a small, empirically-estimated model of the world oil market, which is then linked to a short-run macro-econometric model of the US. We employ the linked energy-economy models to simulate a disruption and the effects of using the SPR on oil prices and private inventory behavior. Our simulations support the view that substantial inventory accumulation accompanies a supply disruption. In the debate over whether the SPR is potentially a potent or impotent resource in an emergency, we lean toward potency. We found that public releases were not absorbed in private stockpiles; indeed, their dampening price effects served, albeit slightly, to discourage speculative stock build. 20 references, 3 figures, 6 tables.

• Research Organization: Energy and Environmental Policy Center, Cambridge, MA (USA)
• DOE Contract Number: AT01-79CS10047
• OSTI ID: 5797714
• Report Number(s): DOE/CS/10047-T10; ON: DE85008900
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
020700* -- Petroleum-- Economics
Industrial
& Business Aspects
29 ENERGY PLANNING, POLICY, AND ECONOMY
294002 -- Energy Planning & Policy-- Petroleum
ECONOMETRICS
ECONOMIC IMPACT
ECONOMICS
EMERGENCY PLANS
ENERGY MODELS
ENERGY POLICY
ENERGY SOURCES
FOSSIL FUELS
FUELS
GOVERNMENT POLICIES
INDUSTRY
INVENTORIES
MARKET
NORTH AMERICA
OPTIMIZATION
PETROLEUM
PETROLEUM INDUSTRY
PRICES
RESERVES
RESOURCES
SIMULATION
STRATEGIC PETROLEUM RESERVE
SUPPLY DISRUPTION
USA