The first oil price explosion 1971-1974
The 1970 price of Saudi Light crude was $1.21, of which 89 cents was excise tax. By end-1974, the price was about $11, of which 30-50 cents was a fee paid to the former owners, now operators. The detailed history of the change does not support any model of resource scarcity, nor of an over- and unde...
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| Format: | Working Paper |
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MIT Center for Energy and Environmental Policy Research
2009
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| Online Access: | http://hdl.handle.net/1721.1/50146 |
| _version_ | 1811079972590190592 |
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| author | Adelman, Morris Albert |
| author_facet | Adelman, Morris Albert |
| author_sort | Adelman, Morris Albert |
| collection | MIT |
| description | The 1970 price of Saudi Light crude was $1.21, of which 89 cents was excise tax. By end-1974, the price was about $11, of which 30-50 cents was a fee paid to the former owners, now operators. The detailed history of the change does not support any model of resource scarcity, nor of an over- and under-investment cycle, nor any transient shortage. What happened was learning by doing. A nascent cartel gained experience and confidence by repeated success in raising prices. Despite excess supply (deficient demand) in 1971 and 1972, repeated excise tax increases raised the price. The expectation of continued tax/price increases, plus the threats of Saudi cutbacks, account for most of the excess demand in the first nine months of 1973, when the tax was raised to $3. The Arab producers' cutbacks in October 1973 amounted to roughly 340 million barrels, 9 percent of world non-Communist consumption during November/December. The momentary explosion in spot prices was made permanent by a ratchet: OPEC increasing the excise from $3 to $7. The "embargo" was a non-event. All consuming countries suffered about the same loss of supply. "Access" to oil, and good or bad relations with the producing nations, were irrelevant. The 1974 tax/price increase, of roughly 50 percent, was achieved in spite of deficient demand, overflowing storage, much discounting, and a buildup of excess producing capacity to over 10 million barrels daily, a third of output. Saudi Arabia was a price "moderate" in words, in fact a leader. |
| first_indexed | 2024-09-23T11:23:26Z |
| format | Working Paper |
| id | mit-1721.1/50146 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T11:23:26Z |
| publishDate | 2009 |
| publisher | MIT Center for Energy and Environmental Policy Research |
| record_format | dspace |
| spelling | mit-1721.1/501462019-04-11T05:55:22Z The first oil price explosion 1971-1974 Adelman, Morris Albert The 1970 price of Saudi Light crude was $1.21, of which 89 cents was excise tax. By end-1974, the price was about $11, of which 30-50 cents was a fee paid to the former owners, now operators. The detailed history of the change does not support any model of resource scarcity, nor of an over- and under-investment cycle, nor any transient shortage. What happened was learning by doing. A nascent cartel gained experience and confidence by repeated success in raising prices. Despite excess supply (deficient demand) in 1971 and 1972, repeated excise tax increases raised the price. The expectation of continued tax/price increases, plus the threats of Saudi cutbacks, account for most of the excess demand in the first nine months of 1973, when the tax was raised to $3. The Arab producers' cutbacks in October 1973 amounted to roughly 340 million barrels, 9 percent of world non-Communist consumption during November/December. The momentary explosion in spot prices was made permanent by a ratchet: OPEC increasing the excise from $3 to $7. The "embargo" was a non-event. All consuming countries suffered about the same loss of supply. "Access" to oil, and good or bad relations with the producing nations, were irrelevant. The 1974 tax/price increase, of roughly 50 percent, was achieved in spite of deficient demand, overflowing storage, much discounting, and a buildup of excess producing capacity to over 10 million barrels daily, a third of output. Saudi Arabia was a price "moderate" in words, in fact a leader. Supported by the National Science Foundation. Supported by the M.I.T. Center for Energy Policy Research. 2009-12-15T23:53:26Z 2009-12-15T23:53:26Z 1990 Working Paper 90-013 http://hdl.handle.net/1721.1/50146 28596081 Working paper (Massachusetts Institute of Technology. Center for Energy Policy Research) ; MIT-CEPR 90-013. 92 p application/pdf MIT Center for Energy and Environmental Policy Research |
| spellingShingle | Adelman, Morris Albert The first oil price explosion 1971-1974 |
| title | The first oil price explosion 1971-1974 |
| title_full | The first oil price explosion 1971-1974 |
| title_fullStr | The first oil price explosion 1971-1974 |
| title_full_unstemmed | The first oil price explosion 1971-1974 |
| title_short | The first oil price explosion 1971-1974 |
| title_sort | first oil price explosion 1971 1974 |
| url | http://hdl.handle.net/1721.1/50146 |
| work_keys_str_mv | AT adelmanmorrisalbert thefirstoilpriceexplosion19711974 AT adelmanmorrisalbert firstoilpriceexplosion19711974 |