1. MEASURING LONG-RUN DEMAND ELASTICITIES FOR PETROLEUM PRODUCTS IN OPEC 1 Carol A. Dahl, Professor, Mineral and Energy Economics Program, Colorado School of Mines, Golden Colorado, USA and Visiting Professor, Department of Economics, King Saud University and Afaf A. Abaalkhail, Lecturer, Department of Economics, College of Business Administration, King Saud University, Riyadh, Saudi Arabia,

2. 2 Coming Attractions: Global Growth in Oil Products compared to OPEC Only Asia Pacific has grown faster Compare model types Talk about scope of project time periods products countries Issues from initial analysis Some observations on Saudi Arabia

3. Global Growth in Oil Products compared to OPEC 3

4. Models Charemza and Deadman (1997) 4

5. Scope of Project 1980-2009 Gasoline, Kerosene, Diesel, Residual Total Oil Products Countries Algeria, Angola, Ecuador, Indonesia, Iran, Kuwait, Libya, Nigeria, Qatar, UAE, Venezuela Today talk about project in context of Saudi Arabia 5

6. Saudi Arabia Battling Russia for the Lead (Source: BP Statistics) 6

7. Oil's Importance to Saudi Arabia (2009) (Source: Saudia Arabian Monetary Authority) >80% of merchandise exports >80% of government revenues >15% of gross fixed capital formation ~1/4 Gross Domestic Product (GDP) 7

8. Issues to Consider Measure of income? GDP erratic from oil cycles permanent income non oil income Population composition? women joining labor force guest workers What price? What currency? local PPP better than exchange rates 8

9. Which Income? 9

10. Saudi Product Consumption 10

11. Domestic and Guest Workers 11

12. Oil and Product Prices 12

13. 13

14. Which Price 14

15. Gasoline 1980-2009 1. LnQ/Pop = β1 + β2LnP + β3LnY/Pop 2. LnQ = β1 + β2LnP + β3LnY 1. Dep=ln(G/Pop) Coefficientt-Statistic C -0.657-0.715 Pg -0.199-3.654 Y/Pop -0.704-4.043 R 2 = 0.39 2. Dep=ln(G) Coefficient t-Statistic C -6.947 -7.678 Pg0.173 2.690 Y 1.486 9.639 R 2 = 0.810 15

16. Gasoline 1981-2009 (LE) 3. LnQ = β1 + β2LnP + β3LnY + β4LnE-1 3. Dep = Ln(G) Coefficient t Statistic LR C -1.050 -3.051 Pg -0.045 -2.820 -0.33 Y 0.240 3.507 1.84 G-1 0.887 19.557 R 2 = 0.996 16

17. Kerosene 1980-2009 1. LnQ/Pop = β1 + β2LnP + β3LnY/Pop 2. LnQ = β1 + β2LnP + β3LnY 1. Dep=ln(K/Pop) Coefficientt-Statistic C 1.932 3.510 Pk -0.001 0.249 Y/Pop -2.019 0.005 R Square = 0.452 2. Dep=ln(K) Coefficient t -Statistic C -12.305-5.253 Pk0.6673.234 Y 2.108 5.157 R Square = 0.671 17

18. Kerosene LE 1981-2009 ~3/4 domestic jet, ~1/4 residential 3. LnK = β1 + β2LnP + β3LnY + β4LnK-1 3. Dep = Ln(K) Coefficient t Statistic LR C-0.586-0.333 Pk-0.068 -0.542 -0.56 Y 0.155 0.512 1.27 K-1 0.878 8.543 18

19. Diesel/Gasoil (1980-2009) ~ 50% Electricity and Industry, Transport 50% 1. LnQ/Pop = β1 + β2LnP + β3LnY/Pop 2. LnQ = β1 + β2LnP + β3LnY 1. Dep=ln(D/Pop) Coefficientt-Statistic C -0.719-2.459 Pd-0.151-3.951 Y/Pop-0.423-3.083 R Square= 0.605 2. Dep=ln(D) Coefficient t -Statistic C 4.785 -5.31 Pd 0.126 2.183 Y 1.185 7.617 R Square= 0.761 19

20. Diesel/Gasoil (1981-2009) 3. LnQ = β1 + β2LnP + β3LnY + β4LnE-1 3. Dep = Ln(D) Coefficient t Statistic LR C-1.323 -3.462 Pd -0.038 -1.951 -0.176 Y 0.327 3.908 1.498 D-10.782 12.505 20

21. Residual (Heavy) Fuel Oil (1981-2006) 1. LnQ/Pop = β1 + β2LnP + β3LnY/Pop 2. LnQ = β1 + β2LnP + β3LnY 1. Dep=ln(R/Pop) Coefficientt-Statistic C-8.361 -1.954 Pr-0.178 -0.546 Y/Pop 1.076 1.333 R-squared 0.326 21

22. Heavy Fuel Oil (1981-2006) 3. LnR = β1 + β2LnP + β3LnY + β4LnR-1 3. Dep = Ln(R) Coefficient t Statistic LR C -0.788-0.707 Pr-0.126-1.399 -1.07 Y 0.210 1.166 1.78 R-1 0.882 8.908 22

23. Sum Up Preliminary Work Suggest Some Interesting Issues At least in Gulf Oil GDP is erratic Composition of population should be investigated Which price may not matter at very low prices 23