Publications: The Petroleum Economics Monthly

Structure Matters: Oil Markets Enter the Adelman Era (March 2015)


The decline in global crude oil prices from $120 has sent economic modelers scrambling back to their computers. Really good econometricians such as James Hamilton of the University of California-San Diego, who less than a year ago assured readers that “hundred dollar oil is here to stay,” have hurriedly looked to their data to explain the market’s unexpected behavior. The oil market has experienced numerous structural changes that have affected oil prices in unforeseeable ways. The late Morris (Morry) Adelman (May 31, 1917, to May 8, 2014) understood the influence of structural change on markets better than any other economist, policymaker, forecaster, or individual in the oil industry. In this report, we identify a number of Adelman-type structural changes that have influenced trends in the global oil market. We conclude by explaining that the Saudis’ November 2014 decision to push aggressively for a larger market share, given their well-known ability to produce oil profitably for less than $10 per barrel, is probably one of the most important structural changes in more than seventy years.


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