REPLY Long term commodity dynamics (SD6483)

[SDMAIL dfranco at cantv.net]

Posted by  "dfranco at cantv.net" <dfranco at cantv.net>

Dear Marcus,

I developed a model for an oil company 5 years ago, with a market module,
where each major actor plays their role. The OPEC actors try to control
price by cutting production, the non OPEC actors maximize profits and the
demand is pulled by world GNP growth. The market module was inspired in
John Moorcroft’ 1990 model of Shell, where he modeled even internal OPEC
actors, but for these particular problem that detail was unnecessary.
Supply side drill oil wells and refine petroleum, because one of the
objectives was to evaluate the impact of cutting production by closing
heavy oil wells in the company performance. I did not use cobb douglas
production function, because it is not the way an oil company extracts oil.
Refineries were mostly auxiliary variables, but shortages in refining
capacity push prices up, because oil is consumed by its final products.
Environmental regulations limit refinery construction and expansion.  The
equilibrium price generated by the model was $70 a barrel, at times where
the OPEC band price was $22-28 range.

Regards,

DOUGLAS FRANCO
Posted by  "dfranco at cantv.net" <dfranco at cantv.net>
posting date  Mon, 18 Jun 2007 08:21:44 -0400