How the two-tier rise will reach equilibrium

Journal Article · Mon Jan 10 04:00:00 EST 1977 · Bus. Week; (United States)

OSTI ID:7237523

The Organization of Petroleum Exporting Countries (OPEC) is initiating a two-tier price increase that is felt by many to be unstable and confusing. Effects will begin to be felt in mid-February as the market picks up. At first the 10.3 percent increase will hold as limited good-quality oils are purchased, but when the additional July 1 increase of 5 percent takes effect, the lighter oils will begin to increase in price and the more-expensive oils will drop until equilibrium is reached at an overall increase of about 8 percent. Problems will arise if Saudi Arabia floods the market with cheaper oils. Estimates are that demand for OPEC oil may be peaking, and the cartel's control of prices will begin to weaken as increased U.S. production limits demand for imported oil. While the four partners in the Arabian American Oil Co. (Exxon, Mobil, Standard Oil of California, and Texaco) will benefit most from cheaper Saudi Arabian oil, Gulf is the only major company that will receive no benefit. The oil companies could pass on their savings and increase market shares or increase profits, but may decide to balance out the effects of the two-tier increase in order to avoid disrupting the market. Even balanced increases pose a threat to the world economy if growth rates, employment, and disposable income decline as they did after 1973. High energy prices restrict available capital and, ultimately, productivity. Rescheduled debts in the developing countries will help, but a slower growth rate is inevitable. (DCK)

• OSTI ID: 7237523
• Journal Information: Bus. Week; (United States), Journal Name: Bus. Week; (United States); ISSN BUWEA
• 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
AGREEMENTS
CHARGES
DEMAND FACTORS
DEVELOPING COUNTRIES
ECONOMIC ELASTICITY
ECONOMIC POLICY
ECONOMY
ENERGY SHORTAGES
ENERGY SOURCES
FOSSIL FUELS
FUELS
GROWTH
INDUSTRY
INTERNATIONAL AGREEMENTS
INTERNATIONAL COOPERATION
INTERNATIONAL ORGANIZATIONS
MARKET
OPEC
PETROLEUM
PROFITS
TRADE