Managing Globalization Doha, Qatar November, 2005 Joseph E. Stiglitz Columbia University New York.

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  • Managing Globalization

    Doha, QatarNovember, 2005Joseph E. StiglitzColumbia UniversityNew York

  • OutlineWhat is globalization?Why has it become such a topic of concern?The mixed record of globalizationThe changing landscape of globalizationThe problems of natural resourcesExplaining puzzle of oil pricesThe natural resource curse

  • What is Globalization?The closer integration of the countries of the world as a result of lowering of communication and transportation costs and the elimination of man-made barriers

    Expansion of the size of the market holds out prospects for increasing standards of living, gains for all

  • But Globalization, As It Has Been Managed, Has Not Benefited AllLosers in developed countriesCompetition from low wage workers abroadAnd increasing threat up the skill ladderOutsourcingEven if only small fraction of jobs can be outsourced, there can be large effects on wagesUndermined traditional response to the threat of globalizationWe dont want those low-skilled jobs anyway.We just need to up-skill

  • Mixed Record in Developing CountriesEast Asia, the most successful region in the world, has grown as a result of globalizationGlobalization of technologyGlobalization of marketsSome have benefited enormously from foreign direct investmentBut they managed globalization on their own termsSlow to open up their marketsMany still have not fully liberalized capital marketsDid not follow prescriptions of the Washington Consensus

  • Elsewhere, Globalization Has Not Gone So WellDecline in real incomes in AfricaStagnation in Middle EastFailures in Latin AmericaUnemployment roseFraction of population in informal sector upGrowth rates half of what it was prior to 1980Poverty persistsGap with the advanced industrial countries increasedEven true for Mexico, with free access to the U.S. market

  • The LessonsThe Washington Consensus has failedEmphasis on liberalization, privatization, macro-stability (emphasis on price stability) is neither necessary nor sufficient conditions for growthBut since the core of Washington Consensus was opening up markets for globalization, in many quarters, its failure has led to opposition to globalization

  • The Real ProblemA particular view of the market economy was pushedWhich did not even describe U.S. economyU.S. has strong industrial policyLarge role of government in financial marketsSafety netsocial securityMacro-policy with emphasis on employment, growth, not just inflationQuestion: Role of ideology, bad economics, and special interestsPolicies were those which advantaged particular interests in U.S. and other advanced industrial countries

  • Globalization and the End of the Cold WarThe end of the Cold war provided an opportunity for redefining international economic policyCould now be based on principlesOr it could be based on interests, unchecked by threat of competition from RussiaU.S., West chose the latter courseWith adverse effects for many in Third World

  • The Uruguay RoundUnfair to developing countriesPoorest countries were actually worse offAllowed advanced industrial countries to continue levying tariffs four times higher on imports from developing countries than on imports from fellow developed countriesTRIPs agreement may stifle future economic growth (kicking away the ladder)Even the worst, deprives developing countries of life-saving drugs

    U.S. , Europe reneging on commitments made in Doha for a Development Round of trade talksU.S. meanwhile increased agriculture subsidiesEurope now refuses to open up its marketsBut agriculture just one of many issuesEven if an agreement emerges, it would not deserve the epithet of a development round

  • Capitalism: An Efficient SystemBut capitalism has inevitable winners and losersAnd in modern democracy, capitalism is often temperedBut internationally, this tempering does not occurDisproportionate role of special interests in international institutionsIntellectual property in TRIPsAt the IMF, capital market liberalizationWhich finally IMF has recognized is not necessarily good for the developing countries

  • The Changing Global Landscape: Rise of China and IndiaEnormously rapid growthTheir integration into the global economy is ushering change of historic proportions2.5 billion peopleWith different factor ratiosEnormous adjustments may be requiredTheory predicts enormously strong downward pressures on unskilled labor in North, growing inequalityPotential source of backlash

  • Competition from China and IndiaFor the first time, there has been such combination of technology, unskilled labor, skilled labor, and access to international markets by a developing countryEven developing own global entrepreneurs (Infosys)Chinas success in textiles not based just on low wagesChinese apparel exporters have been able to reduce unit cost by more than 40% between 2000 and 2004Although labor cost is higher in China than in Bangladesh, Kenya, Cambodia or Madagascar, China is still the least cost producer of clothing - cost saving mostly came from automation of processes, especially from effective sourcing and supply chain management

  • Increasing Role of Asia in the Global EconomyAs source of manufactured goodsAsia, especially the East Asian miracle countries and India, likely to continue to be the bright stars in the global economyAs a source of technologyAnd as source of savingsChina far larger source of global savings than the U.S.Increasing influence in global geo-politics

  • Increasing Role of Asia in theGlobal EconomyHuge savingsAbility to buy technology, corporationsAnd access to needed resourcesNew globalization provides them legal framework to do thisUnocal case expose U.S.s uneaseU.S. cannot stop them in most of the rest of the worldGrowth of China may provide new check on U.S.But unfortunately, will also provide limits on its ability to push democracy, human rights policies (Sudan)Weak economic performance in the U.S. and Europe, however, is likely to lead to rise in protectionist sentiment Though, as in Europe, protectionism will meet resistanceAs retailers and consumers will be hurtAnd even jobs

  • China-U.S. Inter-dependenceBoth countries gain from the economic relationshipArgument that China needs the U.S. to buy its goods and the U.S. needs china to buy its treasuries is not fully persuasiveChina could expand domestic consumption, investment it has great needsWould other countries be as willing to hold U.S. dollars as China has been? What are consequences of shift of deficit from China to others?Easier to increase consumption than to decrease itU.S. made a major mistake in dealing with the Chinese bid for UnocalEven if some of the arguments about lack of full symmetry are correctU.S. cannot stop China from buying energy assets elsewhereU.S. has shown that it believes ownership/control matters

  • China Being Blamed for U.S. Trade DeficitBut problem lies in the U.S. macro-economic policyMuch larger revaluation would put China in a difficult positionLower prices in rural sectorsRural-urban income inequality will grow already a major source of concernWill require costly use of government revenues to offset impact on farmersMove to peg RMB to a basket of currencies and the increased flexibility in exchange rate management make sense for China

  • Global Economic ImbalancesHuge U.S. trade deficitsUS$ 617.7 billion in 2004 a 24% increase since 2003; trade deficit in 2004 stands at record 5.8 % of U.S. GDPTwin deficit problemLargely a result of huge fiscal deficitBut related to deeper problem, global reserve systemLeading to huge financial instabilityHigh level of global uncertaintyRelated to political uncertainties Middle East instability (Iraq)High and volatile price of oilEroding confidence in dollar as a reserve currencyMoving away from dollar reservesNo longer good store of valueExchange rate fluctuations undermine its role as much as inflation would

  • Why American Economists Are Worried About the U.S. EconomyGrowth has been sustained by consumptionConsumption has been sustained by borrowing against housing

    Major source of economic growth:Home building increased from 4.25% GDP 1980-2000 to 5.98%Difference equals $200 billion yearGenerating approximately 2 million jobsIncrease in housing prices added $7 trillion ($ 3 trillion if re-mortgage and inflation is taken into account) in wealth during the past five yearsAdding $150 billion in spendingGenerating 1.5 million jobs

    But:

    High level of household indebtednessLarge debt serviceIf primary residence excluded, net worth of median U.S. households declined by 13% during 2002-2004 from $40,000 to $35,000If interest rates rise, can consumption be sustained?

  • Greater Interdependence Means..Problems in one part of global economic system impact othersThat which is unsustainable will not be sustainedThe U.S. Deficits not sustainableA Downturnor even stagnationin U.S. will have global ramifications

  • The Puzzle of High Oil PriceOil prices soarYet investments in alternative energies, conservation have not

  • Rising Oil Price Since 2003

  • Long Term Trends in Oil PriceSource: U.S. Energy Information Administration

    Chart1

    3.3516.3002270664

    3.5616.5956391985

    3.5617.9407761749

    4.3118.3740286777

    11.1642.7391758214

    11.1639.1648673331

    13.946.1230748949

    14.8546.2671657523

    14.8543.0002846447

    32.584.5159038615

    3784.7773823678

    3572.6930404272

    31.7262.0592009877

    29.2455.4275419178

    25.4346.2292221782

    27.2347.7790175574

    16.0827.6735585761

    17.2428.6624529283

    16.2725.9672226977

    21.0932.1117290186

    27.3439.4939171409

    19.5227.0584185263

    19.4126.120493402

    14.5119.0082885776

    17.1621.8438566131

    19.0423.566993007

    25.3930.5424147818

    18.3221.5457807309

    11.2813.0574126303

    26.0829.5375164967

    28.4631.2035307782

    19.3320.6070242801

    29.4230.8754641467

    32.1532.9886956522

    51.1751.17

    62.8164.8

    1st Oil Shock

    2nd Oil Shock

    1st Gulf War

    2nd Gulf War

    Nominal Price

    Real Price

    WTI Crude Oil Price: 1970-Sept 2005

    Sheet1

    Apr 04, 198329.44

    Jan 03, 198429.4

    Jan 02, 198525.92

    Jan 02, 198625.56

    Jan 02, 198718.13

    Jan 04, 198817.69

    Jan 03, 198917.36

    Jan 02, 199022.89

    Jan 02, 199126.49

    Jan 02, 199219.49

    Jan 04, 199319.04

    Jan 03, 199414.56

    Jan 03, 199517.44

    Jan 02, 199619.81

    Jan 02, 199725.69

    Jan 02, 199817.43

    Jan 04, 199912.34

    Jan 04, 200025.55

    Jan 02, 200127.21

    Jan 02, 200221.01

    Jan 02, 200331.85

    Jan 05, 200433.78

    Oct 13, 200453.64

    Sheet2

    Nominal PriceReal Price

    19703.350.3888.63359484450.20616.30

    19713.560.4058.79006313480.21516.60

    19723.560.3759.50252975370.19817.94

    19734.310.4439.73200671490.23518.37

    197411.160.49322.63727532910.26142.74

    197511.160.53820.74410346030.28539.16

    197613.90.56924.42959475370.30146.12

    197714.850.60624.50591406370.32146.27

    197814.850.65222.7755744940.34543.00

    197932.50.72644.76477958770.38584.52

    1980370.82444.90327455920.43684.78

    1981350.90938.50266971780.48172.69

    198231.720.96532.87033950620.51162.06

    198329.240.99629.35780821920.52855.43

    198425.431.03924.48581683170.55046.23

    198527.231.07625.30668302830.57047.78

    198616.081.09714.6576051780.58127.67

    198717.241.13615.18138396620.60128.66

    198816.271.18313.75382558140.62725.97

    198921.091.24017.0083310480.65732.11

    199027.341.30720.91838831620.69239.49

    199119.521.36214.33178947370.72127.06

    199219.411.40313.83500709850.74326.12

    199314.511.44110.06794945850.76319.01

    199417.161.48311.56983930780.78621.84

    199519.041.52512.48251748250.80823.57

    199625.391.57016.17712647340.83130.54

    199718.321.60511.41196013290.85021.55

    199811.281.6316.91600245250.86413.06

    199926.081.66715.64487102580.88329.54

    200028.461.72216.52729384440.91231.20

    200119.331.77110.91473743650.93820.61

    200229.421.79916.35352973870.95330.88

    200332.151.84017.4728260870.97532.99

    200451.171.88827.10275423731.00051.17

    200562.811.92732.594706798164.8

    Sheet2

    1st Oil Shock

    2nd Oil Shock

    1st Gulf War

    2nd Gulf War

    Nominal Price

    Real Price

    WTI Crude Oil Price: 1970-Sept 2005

    Sheet5

    Average Fuel Economy

    MPG

    197513.1

    197614.2

    197715.1

    197815.8

    197915.9

    198019.2

    198120.5

    198221.1

    198321

    198421

    198521.3

    198621.9

    198722.1

    198822.1

    198921.7

    199021.5

    199121.7

    199221.3

    199321.4

    199421

    199521.1

    199621.2

    199720.9

    199820.9

    199920.6

    200020.7

    200120.7

    200220.6

    200320.7

    200420.8

    Sheet5

    MPG

    Fuel Efficiency (MPG) of U.S. Vehicles: 1975-2004

    Sheet4

    Cars (million)Light Truck and SUV (million)Gasoline Price ($/Gallon)Share of SUV and Light TruckTotalSUV Market Share

    19769.9942.97581.970.00012969.82975.822.94%

    197711.0463.43591.930.00014481.93435.923.73%

    197811.1643.8171.820.00014981381725.48%

    197910.55883.19962.240.00013758.43199.623.26%

    19808.98182.21572.850.00011197.52215.719.79%

    19818.53432.02932.860.00010563.62029.319.21%

    19827.97942.37792.460.00010357.32377.922.96%

    19839.17862.92852.280.00012107.12928.524.19%

    198410.39023.81492.140.00014205.13814.926.86%

    198510.97844.44672.040.00015425.14446.728.83%

    198611.40574.63861.530.00016044.34638.628.91%

    198710.17094.70421.510.00014875.14704.231.62%

    198810.54564.89761.450.00015443.24897.631.71%

    19899.77684.74391.500.00014520.74743.932.67%

    19909.30024.55951.630.00013859.74559.532.90%

    19918.1754.13441.530.00012309.44134.433.59%

    19928.21444.64291.460.00012857.34642.936.11%

    19938.51775.3651.400.00013882.7536538.65%

    19948.99046.05451.370.00015044.96054.540.24%

    19958.63626.08141.370.00014717.66081.441.32%

    19968.52686.56271.440.00015089.56562.743.49%

    19978.27256.84161.410.00015114.16841.645.27%

    19988.14217.39151.190.00015533.67391.547.58%

    19998.69658.18291.290.00016879.48182.948.48%

    20008.85218.49161.630.00017343.78491.648.96%

    20018.42218.69621.520.00117118.38696.250.80%

    20028.10248.70781.410.00116810.28707.851.80%

    20037.61459.02531.600.00116639.89025.354.24%

    20047.79.41.840.00117064.59398.355.07%

    5902.76747.712650.4

    5749.77048.712798.4

    7666.26666666679398.266666666717064.5333333333

    Sheet4

    Oil Shock

    1st Gulf War

    2ndGulf War

    Cars (million)

    Light Truck and SUV (million)

    Gasoline Price ($/Gallon)

    Real Gasoline Price and Automobile Sale in the U.S.

    Sheet6

    SUV Market Share

    SUV Market Share in the U.S.

    Sheet9

    ReferenceLow PriceHigh Price

    197011.26

    197111.51

    197211.21

    197313.44

    197437.87

    197538.55

    197635.28

    197735.74

    197833.46

    197945.96

    198065.7

    198165.73

    198256.02

    198347.08

    198444.78

    198540.54

    198620.58

    198725.86

    198820.1

    198924.03

    199027.85

    199123.08

    199221.95

    199318.99

    199417.88

    199519.34

    199622.85

    199720.13

    199812.92

    199918.25

    200028.71

    200122.26

    200223.71

    200327.2927.2927.29

    200426.8816.8730.81

    200524.716.9931.18

    200623.4816.9931.62

    200723.6616.9932.04

    200823.8316.9932.44

    200924.0116.9932.92

    201024.1816.9933.28

    201124.3716.9933.62

    201224.5416.9933.83

    201324.7316.9934.02

    201424.916.9934.17

    201525.0816.9934.24

    201625.2716.9934.32

    201725.4616.9934.4

    201825.6516.9934.48

    201925.8416.9934.56

    202026.0316.9934.64

    202126.2216.9934.72

    202226.4116.9934.8

    202326.6116.9934.88

    202426.816.9934.96

    202527.0116.9935.04

    Sheet9

    World Oil Price (Refiners Acquisition Cost): Projection

    Sheet8

    20041,144,6871,004,5221,669,4741,236,6491,203,3151,369,1951,195,833745,446

    20031,165,360987,7051,565,6641,187,7221,191,0241,295,5761,259,890755,2251,333,2681,144,9381,013,438942,23413,842,044-1.2%

    2,0021,249,7141,024,3371,526,0301,264,9671,245,9831,240,6881,243,631796,2591,276,3931,149,8151,028,928961,26814,008,013-0.03

    20011,263,6741,045,7141,636,2431,247,5821,356,1581,345,4101,252,876858,0071,265,7441,171,6371,098,529860,34314,401,9170.01

    20001,266,6681,151,0141,716,6261,234,0621,390,9521,260,0441,205,241871,0231,229,9771,079,8651,063,606850,02914,319,107-0.02

    19991,222,2471,063,2181,700,2961,338,8441,246,1711,304,4621,428,216872,9101,311,2411,131,4121,079,042934,76714,632,8260.05

    19981,229,8411,112,9131,403,8101,211,0171,156,8591,172,0671,210,2151,231,4981,068,6221,142,1881,075,509926,28413,940,8230.07

    19971,101,3381,011,4671,206,4841,235,1001,111,6311,093,7791,121,7541,197,092991,4881,126,781957,690850,42513,005,0290.05

    19961,126,9111,023,2661,243,0741,121,3811,133,7981,001,5091,018,2911,133,496943,1021,034,294870,327749,52112,398,9700.06

    19951,059,176918,9011,204,058990,7081,064,1711,109,475873,0721,076,156839,550895,899926,508711,69011,669,3640.01

    19941,018,742895,1741,231,4561,006,0061,049,5531,013,593898,0121,056,410859,311883,752893,229779,50111,584,7390.06

    1993967,809886,0441,141,4781,043,648915,351904,297883,7221,007,581811,920860,714806,221703,44410,932,229-0.17

    19921,277,3691,065,0251,280,3401,306,9691,145,9011,109,7211,126,1901,015,288909,2261,033,480932,280947,78613,149,5750.01

    19911,245,5201,054,1411,322,4661,247,1691,217,1371,134,9341,309,476982,745845,7381,038,697910,065740,03413,048,122-0.01

    19901,306,2891,071,3801,318,1891,168,7901,203,9031,063,6741,045,8931,187,984889,0391,116,6821,031,625721,48013,124,928

    20049,569,1211.7%

    20039,408,16620041.50.2

    20029,591,6090.518248175220051.8

    200110,005,66420062.16

    20072.592

    20083.1104

    20093.73248

    20104.478976

    20115.3747712

    20126.44972544

    20137.739670528

    20149.2876046336

    201511.1451255603

    201613.3741506724

    201716.0489808069

    201819.2587769682

    201923.1105323619

    202027.7326388343

    202133.2791666011

    202239.9349999213

    202347.9219999056

    202457.5063998867

    202569.0076798641

    202682.8092158369

    202799.3710590042

    2028119.2452708051

    2029143.0943249661

    2030171.7131899593

    Sheet10

    CarsSUVs

    GM24.917.3

    Ford21.916.9

    Chrysler23.818

    Toyota27.619.6

    Honda27.721.1

    Nissan24.916.4

    VW24.218

    Others22.117.2

    Average24.617.9

    Sheet10

    Cars

    SUVs

    Fuel Efficiency in 2004: Cars and SUVs

    Sheet7

    Oil ImportTotal Import11875103800

    200011925112180229.8%11696104835

    200110274711409999.0%13991123287

    200210266311613668.8%13058118917

    2003132433125712110.5%14143117965

    January1187510380015705127220

    February1169610483514625122864

    March139911232871043554854

    April130581189171025855917

    May141431179651263463524

    June157051272201109559162

    July146251228641039959983

    9509381888811.6%1079061570

    1184457070

    1043554854

    1025855917

    1263463524

    1109559162

    1039959983

    1079061570

    1184457070

    7745541208019%

    Sheet3

    DateBelgiumFranceGermanyItalyNetherlandsU.K.U.S.

    19963.953.934.073.894.323.201.27

    19974.214.013.834.184.293.741.41

    19983.473.513.303.573.593.781.29

    19993.523.583.343.633.773.831.13

    20003.343.573.523.543.784.171.46

    20013.473.583.553.744.024.421.61

    20023.133.233.213.353.673.781.29

    20033.904.154.404.254.644.571.64

    20044.774.735.054.985.595.171.70

    10/11/045.445.195.635.486.145.642.18

    13.91%9.65%11.33%10.05%9.91%9.07%28.10%

    Belgium13.91%

    France9.65%

    Germany11.33%

    Italy10.05%0.1065348393

    Netherlands9.91%

    U.K.9.07%

    U.S.28.10%

    Tax

    Tax Rate

    France1.3220.3870.935241.6%210%

    Germany1.4440.4460.998223.8%

    Italy1.4130.4950.918185.5%

    Spain1.0980.4640.634136.6%

    U.K.1.4510.4011.05261.8%

    Japan1.0850.5460.53998.7%

    Canada0.6310.3980.23358.5%

    U.S.0.4970.3940.10326.1%

    13.7311.5

    25.211.5

    2525

    630287.5

    365365

    229.95104.9375

    Sheet3

    United States

    Belgium

    France

    Germany

    Italy

    Netherlands

    U.K.

    U.S.

    Real Gasoline Price (including taxes): U.S. and Selected European Countries

    Price Increase

    Gasoline Price (End-user) Increase Since January 2004

    Tax Rate

    Gasoline Tax Rate in Selected Countries: 2004

    Motor Vehicle Unit Retail Sales

    Table 6 - Light Vehicle and Total Vehicle Sales

    Autos -- not seasonally adjusted (Thousands)Light Trucks -- not seasonally adjusted (Thousands)Light Total --not seasonally adjusted (Thousands)

    January1976671.0193.6864.6

    February1976747.7225.6973.3

    March1976935.1281.01216.1

    April1976902.7260.51163.2

    May1976910.0266.11176.1

    June1976944.2280.71224.9

    July1976854.6275.51130.1

    August1976753.1241.8994.9

    September1976784.6240.31024.9

    October1976860.4243.31103.7

    November1976832.3229.71062.0

    December1976798.3237.71036.0

    9994.02975.812969.8

    January1977716.2228.8945.0

    February1977799.0266.41065.4

    March19771069.0345.01414.0

    April19771016.3304.01320.3

    May19771041.5303.21344.7

    June19771104.2320.31424.5

    July1977901.8269.51171.3

    August1977919.5281.71201.2

    September1977817.9255.91073.8

    October19771003.2303.31306.5

    November1977870.7283.41154.1

    December1977786.7274.41061.1

    11046.03435.914481.9

    January1978679.6226.6906.2

    February1978768.4274.81043.2

    March19781063.9372.61436.5

    April19781028.8339.61368.4

    May19781143.5373.11516.6

    June19781119.2386.31505.5

    July1978913.7335.01248.7

    August1978944.6339.31283.9

    September1978819.7247.71067.4

    October19781023.7332.81356.5

    November1978898.6318.01216.6

    December1978760.3271.21031.5

    11164.03817.014981.0

    January1979774.1272.21046.3

    February1979831.6283.71115.3

    March19791103.8338.11441.9

    April1979976.3290.11266.4

    May19791042.4294.71337.1

    June1979894.5255.31149.8

    July1979876.2251.41127.6

    August1979908.2268.01176.2

    September1979766.8235.81002.6

    October1979891.5271.81163.3

    November1979767.7226.8994.5

    December1979725.7211.7937.4

    10558.83199.613758.4

    January1980805.8212.01017.8

    February1980811.6203.91015.5

    March1980895.2220.91116.1

    April1980743.3181.2924.5

    May1980696.7177.1873.8

    June1980701.9207.6909.5

    July1980772.6206.8979.4

    August1980685.5173.6859.1

    September1980674.1149.4823.5

    October1980847.5171.81019.3

    November1980698.2156.8855.0

    December1980649.4154.6804.0

    8981.82215.711197.5

    January1981647.5147.9795.4

    February1981764.0168.3932.3

    March1981962.7194.21156.9

    April1981751.3186.2937.5

    May1981733.6181.1914.7

    June1981723.8200.4924.2

    July1981706.8168.6875.4

    August1981801.1189.0990.1

    September1981687.2159.4846.6

    October1981648.8154.9803.7

    November1981584.6145.7730.3

    December1981522.9133.6656.5

    8534.32029.310563.6

    January1982534.7163.7698.4

    February1982632.5193.8826.3

    March1982777.0262.41039.4

    April1982668.9189.4858.3

    May1982774.3228.91003.2

    June1982651.0200.3851.3

    July1982629.5181.4810.9

    August1982608.9171.0779.9

    September1982671.2205.2876.4

    October1982656.0171.5827.5

    November1982743.4217.6961.0

    December1982632.0192.7824.7

    7979.42377.910357.3

    January1983595.8180.0775.8

    February1983627.8182.0809.8

    March1983821.4263.21084.6

    April1983761.9235.2997.1

    May1983836.6259.41096.0

    June1983903.8285.71189.5

    July1983791.6243.31034.9

    August1983740.7235.7976.4

    September1983704.8258.9963.7

    October1983860.8247.91108.7

    November1983781.7253.91035.6

    December1983751.7283.31035.0

    9178.62928.512107.1

    January1984778.5262.51041.0

    February1984841.4298.91140.3

    March1984963.9365.81329.7

    April1984895.6326.51222.1

    May19841047.0379.51426.5

    June1984952.4338.31290.7

    July1984889.8320.41210.2

    August1984814.9291.71106.6

    September1984743.5285.41028.9

    October1984901.5338.71240.2

    November1984802.4316.31118.7

    December1984759.3290.91050.2

    10390.23814.914205.1

    January1985829.9344.11174.0

    February1985833.4356.91190.3

    March1985965.0399.21364.2

    April1985983.3369.61352.9

    May19851068.5404.41472.9

    June1985920.2387.01307.2

    July1985892.4420.21312.6

    August1985995.4327.61323.0

    September19851064.3374.41438.7

    October1985859.1357.91217.0

    November1985758.4342.61101.0

    December1985808.5362.81171.3

    10978.44446.715425.1

    January1986866.8326.21193.0

    February1986829.7335.11164.8

    March1986893.8380.71274.5

    April1986969.3395.51364.8

    May19861068.5438.61507.1

    June1986997.8403.41401.2

    July1986949.7404.31354.0

    August1986949.0373.51322.5

    September19861213.1497.41710.5

    October1986902.1343.81245.9

    November1986778.5322.11100.6

    December1986987.4418.01405.4

    11405.74638.616044.3

    January1987621.8278.0899.8

    February1987774.4354.21128.6

    March1987927.0429.91356.9

    April1987931.3426.91358.2

    May1987861.2412.61273.8

    June1987935.1459.41394.5

    July1987905.7425.21330.9

    August1987959.2417.21376.4

    September1987896.9378.71275.6

    October1987794.5373.81168.3

    November1987729.2358.91088.1

    December1987834.6389.41224.0

    10170.94704.214875.1

    January1988757.2343.71100.9

    February1988880.5402.41282.9

    March1988998.5475.71474.2

    April1988895.1407.91303.0

    May1988966.9459.61426.5

    June19881002.6450.81453.4

    July1988856.0418.71274.7

    August1988878.7412.01290.7

    September1988822.3373.11195.4

    October1988829.0390.71219.7

    November1988786.8378.41165.2

    December1988872.0384.61256.6

    10545.64897.615443.2

    January1989711.9346.91058.8

    February1989745.6358.51104.1

    March1989879.2430.71309.9

    April1989904.6421.51326.1

    May1989963.8445.91409.7

    June1989888.8411.71300.5

    July1989837.1415.11252.2

    August1989963.5451.51415.0

    September1989829.9409.71239.6

    October1989739.2350.51089.7

    November1989672.3353.61025.9

    December1989640.9348.3989.2

    9776.84743.914520.7

    January1990743.3396.21139.5

    February1990716.5335.51052.0

    March1990850.3419.61269.9

    April1990802.1399.41201.5

    May1990872.4435.11307.5

    June1990857.3424.11281.4

    July1990803.2415.11218.3

    August1990786.0387.41173.4

    September1990769.0354.01123.0

    October1990787.8357.31145.1

    November1990661.2321.0982.2

    December1990651.1314.8965.9

    9300.24559.513859.7

    January1991554.6267.6822.2

    February1991621.5289.1910.6

    March1991730.3352.71083.0

    April1991690.7348.91039.6

    May1991769.5385.51155.0

    June1991771.7385.01156.7

    July1991773.2391.01164.2

    August1991690.4355.11045.5

    September1991671.4373.01044.4

    October1991702.0327.51029.5

    November1991606.5310.8917.3

    December1991593.2348.2941.4

    8175.04134.412309.4

    January1992560.5290.6851.1

    February1992651.1320.6971.7

    March1992720.4387.81108.2

    April1992715.8406.11121.9

    May1992733.7416.21149.9

    June1992824.8450.31275.1

    July1992733.6402.11135.7

    August1992644.8399.91044.7

    September1992673.7399.91073.6

    October1992694.5412.91107.4

    November1992601.0369.3970.3

    December1992660.5387.21047.7

    8214.44642.912857.3

    January1993562.2335.0897.2

    February1993593.4363.1956.5

    March1993735.1467.61202.7

    April1993768.7477.11245.8

    May1993812.1504.41316.5

    June1993835.6518.21353.8

    July1993763.5477.01240.5

    August1993697.1436.31133.4

    September1993704.0434.51138.5

    October1993717.3439.71157.0

    November1993667.6448.31115.9

    December1993661.1463.81124.9

    8517.75365.013882.7

    January1994606.1415.81021.9

    February1994698.6448.61147.2

    March1994876.2565.81442.0

    April1994785.8521.61307.4

    May1994814.5539.51354.0

    June1994871.4574.31445.7

    July1994713.2477.51190.7

    August1994782.3514.81297.1

    September1994741.8480.51222.3

    October1994738.0522.51260.5

    November1994670.7498.51169.2

    December1994691.8495.11186.9

    8990.46054.515044.9

    January1995581.5418.61000.1

    February1995649.1450.11099.2

    March1995798.7566.81365.5

    April1995685.9494.01179.9

    May1995825.2565.71390.9

    June1995852.8586.01438.8

    July1995721.3502.81224.1

    August1995806.4526.21332.6

    September1995714.9468.81183.7

    October1995701.6490.61192.2

    November1995644.5496.11140.6

    December1995654.3515.71170.0

    8636.26081.414717.6

    January1996567.0456.71023.7

    February1996690.6518.21208.8

    March1996792.9578.81371.7

    April1996760.9564.81325.7

    May1996871.1617.21488.3

    June1996792.4575.91368.3

    July1996732.4552.01284.4

    August1996749.9552.71302.6

    September1996696.6506.81203.4

    October1996677.9588.21266.1

    November1996590.4532.11122.5

    December1996604.7519.31124.0

    8526.86562.715089.5

    January1997612.1476.81088.9

    February1997648.1502.51150.6

    March1997766.2625.61391.8

    April1997698.7576.91275.6

    May1997771.4630.81402.2

    June1997740.1582.61322.7

    July1997739.6604.51344.1

    August1997740.4576.11316.5

    September1997669.0537.71206.7

    October1997665.3580.71246.0

    November1997563.8553.41117.2

    December1997657.8594.01251.8

    8272.56841.615114.1

    January1998525.9490.91016.8

    February1998615.3528.11143.4

    March1998724.1643.91368.0

    April1998710.9641.31352.2

    May1998793.1714.71507.8

    June1998818.7750.31569.0

    July1998635.8592.81228.6

    August1998675.2553.11228.3

    September1998684.8592.31277.1

    October1998712.4653.91366.3

    November1998562.1577.71139.8

    December1998683.8652.51336.3

    8142.17391.515533.6

    January1999546.0542.91088.9

    February1999670.6614.81285.4

    March1999788.0742.71530.7

    April1999736.7666.01402.7

    May1999830.1757.01587.1

    June1999831.6771.51603.1

    July1999771.0714.91485.9

    August1999798.7680.51479.2

    September1999715.9680.61396.5

    October1999688.5662.51351.0

    November1999639.4635.61275.0

    December1999680.0713.91393.9

    8696.58182.916879.4

    January2000621.8582.41204.2

    February2000769.0729.91498.9

    March2000836.0826.21662.2

    April2000774.7720.01494.7

    May2000833.8784.61618.4

    June2000841.2772.01613.2

    July2000744.2687.11431.3

    August2000806.1736.01542.1

    September2000747.9725.61473.5

    October2000665.4667.81333.2

    November2000601.3631.61232.9

    December2000610.7628.41239.1

    8852.18491.617343.7

    January2001591.7575.51167.2

    February2001701.3651.51352.8

    March2001789.3804.11593.4

    April2001689.7656.61346.3

    May2001814.6784.91599.5

    June2001811.1808.21619.3

    July2001666.8679.91346.7

    August2001726.6721.41448.0

    September2001640.2648.61288.8

    October2001813.4908.51721.9

    November2001603.0721.21324.2

    December2001574.4735.81310.2

    8422.18696.217118.3

    January2002526.0582.21108.2

    February2002624.8681.91306.7

    March2002741.6771.81513.4

    April2002717.6723.81441.4

    May2002758.4747.91506.3

    June2002761.3774.81536.1

    July2002740.7783.31524.0

    August2002829.7875.31705.0

    September2002602.1621.41223.5

    October2002604.7695.91300.6

    November2002570.6632.21202.8

    December2002624.9817.31442.2

    8102.48707.816810.2

    January2003543.2544.41087.6

    February2003581.1636.11217.2

    March2003695.7757.11452.8

    April2003653.0754.81407.8

    May2003726.9846.21573.1

    June2003688.6785.11473.7

    July2003680.1828.91509.0

    August2003738.1890.31628.4

    September2003596.0704.81300.85902.76747.712650.4

    October2003573.8728.91302.7

    November2003557.7701.01258.7

    December2003580.3847.71428.0

    7614.59025.316639.8

    January2004495.4626.21121.6

    February2004582.2692.31274.5

    March2004692.0809.41501.4

    April2004644.0775.31419.3

    May2004742.9882.41625.3

    June2004669.4774.31443.7

    July2004682.0870.91552.9

    August2004636.0790.11426.1

    September2004605.8827.81433.6

    5749.77048.712798.4

  • Futures: High Oil Price is Here to Stay?

    Chart1

    66.664.8

    65.962.93

    66.163.45

    66.6563.9

    66.9564.4

    67.0564.8

    67.165.25

    65.565.5

    66.8565.15

    66.266.2

    67.2667.26

    65.365.3

    65.765.55

    67.0767.07

    66.4564.7

    63.563.5

    65.465.4

    65.965.9

    63.6563.65

    63.4563.45

    65.765.55

    64.5364.53

    64.3764.37

    64.2164.21

    63.1662.8

    50.350.25

    6362.9

    62.5562.55

    64.564.5

    63.363.3

    62.262.2

    61.560.5

    High

    Low

    NYMEX: Light Sweet Crude Oil Futures

    Sheet11

    HighLow

    Oct-0566.664.8

    Nov-0565.962.93

    Dec-0566.163.45

    Jan-0666.6563.9

    Feb-0666.9564.4

    Mar-0667.0564.8

    Apr-0667.165.25

    May-0665.565.5

    Jun-0666.8565.15

    Jul-0666.266.2

    Aug-0667.2667.26

    Sep-0665.365.3

    Oct-0665.765.55

    Nov-0667.0767.07

    Dec-0666.4564.7

    Jan-0763.563.5

    Feb-0765.465.4

    Mar-0765.965.9

    Apr-0763.6563.65

    May-0763.4563.45

    Jun-0765.765.55

    Jul-0764.5364.53

    Aug-0764.3764.37

    Sep-0764.2164.21

    Oct-0763.1662.8

    Nov-0750.350.25

    Dec-076362.9

    Jan-0862.5562.55

    Mar-0864.564.5

    Jun-0863.363.3

    Dec-0862.262.2

    Dec-0961.560.5

    Sheet11

    High

    Low

    NYMEX: Light Sweet Crude Oil Futures

    Sheet1

    Apr 04, 198329.44

    Jan 03, 198429.4

    Jan 02, 198525.92

    Jan 02, 198625.56

    Jan 02, 198718.13

    Jan 04, 198817.69

    Jan 03, 198917.36

    Jan 02, 199022.89

    Jan 02, 199126.49

    Jan 02, 199219.49

    Jan 04, 199319.04

    Jan 03, 199414.56

    Jan 03, 199517.44

    Jan 02, 199619.81

    Jan 02, 199725.69

    Jan 02, 199817.43

    Jan 04, 199912.34

    Jan 04, 200025.55

    Jan 02, 200127.21

    Jan 02, 200221.01

    Jan 02, 200331.85

    Jan 05, 200433.78

    Oct 13, 200453.64

    Sheet2

    Nominal PriceReal Price

    19703.350.3888.63359484450.20616.30

    19713.560.4058.79006313480.21516.60

    19723.560.3759.50252975370.19817.94

    19734.310.4439.73200671490.23518.37

    197411.160.49322.63727532910.26142.74

    197511.160.53820.74410346030.28539.16

    197613.90.56924.42959475370.30146.12

    197714.850.60624.50591406370.32146.27

    197814.850.65222.7755744940.34543.00

    197932.50.72644.76477958770.38584.52

    1980370.82444.90327455920.43684.78

    1981350.90938.50266971780.48172.69

    198231.720.96532.87033950620.51162.06

    198329.240.99629.35780821920.52855.43

    198425.431.03924.48581683170.55046.23

    198527.231.07625.30668302830.57047.78

    198616.081.09714.6576051780.58127.67

    198717.241.13615.18138396620.60128.66

    198816.271.18313.75382558140.62725.97

    198921.091.24017.0083310480.65732.11

    199027.341.30720.91838831620.69239.49

    199119.521.36214.33178947370.72127.06

    199219.411.40313.83500709850.74326.12

    199314.511.44110.06794945850.76319.01

    199417.161.48311.56983930780.78621.84

    199519.041.52512.48251748250.80823.57

    199625.391.57016.17712647340.83130.54

    199718.321.60511.41196013290.85021.55

    199811.281.6316.91600245250.86413.06

    199926.081.66715.64487102580.88329.54

    200028.461.72216.52729384440.91231.20

    200119.331.77110.91473743650.93820.61

    200229.421.79916.35352973870.95330.88

    200332.151.84017.4728260870.97532.99

    200451.171.88827.10275423731.00051.17

    1.927

    Sheet2

    1st Oil Shock

    2nd Oil Shock

    1st Gulf War

    Nominal Price

    Real Price

    WTI Crude Oil Price: 1970-2004

    Sheet5

    Average Fuel Economy

    MPG

    197513.1

    197614.2

    197715.1

    197815.8

    197915.9

    198019.2

    198120.5

    198221.1

    198321

    198421

    198521.3

    198621.9

    198722.1

    198822.1

    198921.7

    199021.5

    199121.7

    199221.3

    199321.4

    199421

    199521.1

    199621.2

    199720.9

    199820.9

    199920.6

    200020.7

    200120.7

    200220.6

    200320.7

    200420.8

    Sheet5

    MPG

    Fuel Efficiency (MPG) of U.S. Vehicles: 1975-2004

    Sheet4

    Cars (million)Light Truck and SUV (million)Gasoline Price ($/Gallon)Share of SUV and Light TruckTotalSUV Market Share

    19769.9942.97581.970.00012969.82975.822.94%

    197711.0463.43591.930.00014481.93435.923.73%

    197811.1643.8171.820.00014981381725.48%

    197910.55883.19962.240.00013758.43199.623.26%

    19808.98182.21572.850.00011197.52215.719.79%

    19818.53432.02932.860.00010563.62029.319.21%

    19827.97942.37792.460.00010357.32377.922.96%

    19839.17862.92852.280.00012107.12928.524.19%

    198410.39023.81492.140.00014205.13814.926.86%

    198510.97844.44672.040.00015425.14446.728.83%

    198611.40574.63861.530.00016044.34638.628.91%

    198710.17094.70421.510.00014875.14704.231.62%

    198810.54564.89761.450.00015443.24897.631.71%

    19899.77684.74391.500.00014520.74743.932.67%

    19909.30024.55951.630.00013859.74559.532.90%

    19918.1754.13441.530.00012309.44134.433.59%

    19928.21444.64291.460.00012857.34642.936.11%

    19938.51775.3651.400.00013882.7536538.65%

    19948.99046.05451.370.00015044.96054.540.24%

    19958.63626.08141.370.00014717.66081.441.32%

    19968.52686.56271.440.00015089.56562.743.49%

    19978.27256.84161.410.00015114.16841.645.27%

    19988.14217.39151.190.00015533.67391.547.58%

    19998.69658.18291.290.00016879.48182.948.48%

    20008.85218.49161.630.00017343.78491.648.96%

    20018.42218.69621.520.00117118.38696.250.80%

    20028.10248.70781.410.00116810.28707.851.80%

    20037.61459.02531.600.00116639.89025.354.24%

    20047.79.41.840.00117064.59398.355.07%

    5902.76747.712650.4

    5749.77048.712798.4

    7666.26666666679398.266666666717064.5333333333

    Sheet4

    Oil Shock

    1st Gulf War

    2ndGulf War

    Cars (million)

    Light Truck and SUV (million)

    Gasoline Price ($/Gallon)

    Real Gasoline Price and Automobile Sale in the U.S.

    Sheet6

    SUV Market Share

    SUV Market Share in the U.S.

    Sheet9

    ReferenceLow PriceHigh Price

    197011.26

    197111.51

    197211.21

    197313.44

    197437.87

    197538.55

    197635.28

    197735.74

    197833.46

    197945.96

    198065.7

    198165.73

    198256.02

    198347.08

    198444.78

    198540.54

    198620.58

    198725.86

    198820.1

    198924.03

    199027.85

    199123.08

    199221.95

    199318.99

    199417.88

    199519.34

    199622.85

    199720.13

    199812.92

    199918.25

    200028.71

    200122.26

    200223.71

    200327.2927.2927.29

    200426.8816.8730.81

    200524.716.9931.18

    200623.4816.9931.62

    200723.6616.9932.04

    200823.8316.9932.44

    200924.0116.9932.92

    201024.1816.9933.28

    201124.3716.9933.62

    201224.5416.9933.83

    201324.7316.9934.02

    201424.916.9934.17

    201525.0816.9934.24

    201625.2716.9934.32

    201725.4616.9934.4

    201825.6516.9934.48

    201925.8416.9934.56

    202026.0316.9934.64

    202126.2216.9934.72

    202226.4116.9934.8

    202326.6116.9934.88

    202426.816.9934.96

    202527.0116.9935.04

    Sheet9

    World Oil Price (Refiners Acquisition Cost): Projection

    Sheet8

    20041,144,6871,004,5221,669,4741,236,6491,203,3151,369,1951,195,833745,446

    20031,165,360987,7051,565,6641,187,7221,191,0241,295,5761,259,890755,2251,333,2681,144,9381,013,438942,23413,842,044-1.2%

    2,0021,249,7141,024,3371,526,0301,264,9671,245,9831,240,6881,243,631796,2591,276,3931,149,8151,028,928961,26814,008,013-0.03

    20011,263,6741,045,7141,636,2431,247,5821,356,1581,345,4101,252,876858,0071,265,7441,171,6371,098,529860,34314,401,9170.01

    20001,266,6681,151,0141,716,6261,234,0621,390,9521,260,0441,205,241871,0231,229,9771,079,8651,063,606850,02914,319,107-0.02

    19991,222,2471,063,2181,700,2961,338,8441,246,1711,304,4621,428,216872,9101,311,2411,131,4121,079,042934,76714,632,8260.05

    19981,229,8411,112,9131,403,8101,211,0171,156,8591,172,0671,210,2151,231,4981,068,6221,142,1881,075,509926,28413,940,8230.07

    19971,101,3381,011,4671,206,4841,235,1001,111,6311,093,7791,121,7541,197,092991,4881,126,781957,690850,42513,005,0290.05

    19961,126,9111,023,2661,243,0741,121,3811,133,7981,001,5091,018,2911,133,496943,1021,034,294870,327749,52112,398,9700.06

    19951,059,176918,9011,204,058990,7081,064,1711,109,475873,0721,076,156839,550895,899926,508711,69011,669,3640.01

    19941,018,742895,1741,231,4561,006,0061,049,5531,013,593898,0121,056,410859,311883,752893,229779,50111,584,7390.06

    1993967,809886,0441,141,4781,043,648915,351904,297883,7221,007,581811,920860,714806,221703,44410,932,229-0.17

    19921,277,3691,065,0251,280,3401,306,9691,145,9011,109,7211,126,1901,015,288909,2261,033,480932,280947,78613,149,5750.01

    19911,245,5201,054,1411,322,4661,247,1691,217,1371,134,9341,309,476982,745845,7381,038,697910,065740,03413,048,122-0.01

    19901,306,2891,071,3801,318,1891,168,7901,203,9031,063,6741,045,8931,187,984889,0391,116,6821,031,625721,48013,124,928

    20049,569,1211.7%

    20039,408,16620041.50.2

    20029,591,6090.518248175220051.8

    200110,005,66420062.16

    20072.592

    20083.1104

    20093.73248

    20104.478976

    20115.3747712

    20126.44972544

    20137.739670528

    20149.2876046336

    201511.1451255603

    201613.3741506724

    201716.0489808069

    201819.2587769682

    201923.1105323619

    202027.7326388343

    202133.2791666011

    202239.9349999213

    202347.9219999056

    202457.5063998867

    202569.0076798641

    202682.8092158369

    202799.3710590042

    2028119.2452708051

    2029143.0943249661

    2030171.7131899593

    Sheet10

    CarsSUVs

    GM24.917.3

    Ford21.916.9

    Chrysler23.818

    Toyota27.619.6

    Honda27.721.1

    Nissan24.916.4

    VW24.218

    Others22.117.2

    Average24.617.9

    Sheet10

    Cars

    SUVs

    Fuel Efficiency in 2004: Cars and SUVs

    Sheet7

    Oil ImportTotal Import11875103800

    200011925112180229.8%11696104835

    200110274711409999.0%13991123287

    200210266311613668.8%13058118917

    2003132433125712110.5%14143117965

    January1187510380015705127220

    February1169610483514625122864

    March139911232871043554854

    April130581189171025855917

    May141431179651263463524

    June157051272201109559162

    July146251228641039959983

    9509381888811.6%1079061570

    1184457070

    1043554854

    1025855917

    1263463524

    1109559162

    1039959983

    1079061570

    1184457070

    7745541208019%

    Sheet3

    DateBelgiumFranceGermanyItalyNetherlandsU.K.U.S.

    19963.953.934.073.894.323.201.27

    19974.214.013.834.184.293.741.41

    19983.473.513.303.573.593.781.29

    19993.523.583.343.633.773.831.13

    20003.343.573.523.543.784.171.46

    20013.473.583.553.744.024.421.61

    20023.133.233.213.353.673.781.29

    20033.904.154.404.254.644.571.64

    20044.774.735.054.985.595.171.70

    10/11/045.445.195.635.486.145.642.18

    13.91%9.65%11.33%10.05%9.91%9.07%28.10%

    Belgium13.91%

    France9.65%

    Germany11.33%

    Italy10.05%0.1065348393

    Netherlands9.91%

    U.K.9.07%

    U.S.28.10%

    Tax

    Tax Rate

    France1.3220.3870.935241.6%210%

    Germany1.4440.4460.998223.8%

    Italy1.4130.4950.918185.5%

    Spain1.0980.4640.634136.6%

    U.K.1.4510.4011.05261.8%

    Japan1.0850.5460.53998.7%

    Canada0.6310.3980.23358.5%

    U.S.0.4970.3940.10326.1%

    13.7311.5

    25.211.5

    2525

    630287.5

    365365

    229.95104.9375

    Sheet3

    United States

    Belgium

    France

    Germany

    Italy

    Netherlands

    U.K.

    U.S.

    Real Gasoline Price (including taxes): U.S. and Selected European Countries

    Price Increase

    Gasoline Price (End-user) Increase Since January 2004

    Tax Rate

    Gasoline Tax Rate in Selected Countries: 2004

    Motor Vehicle Unit Retail Sales

    Table 6 - Light Vehicle and Total Vehicle Sales

    Autos -- not seasonally adjusted (Thousands)Light Trucks -- not seasonally adjusted (Thousands)Light Total --not seasonally adjusted (Thousands)

    January1976671.0193.6864.6

    February1976747.7225.6973.3

    March1976935.1281.01216.1

    April1976902.7260.51163.2

    May1976910.0266.11176.1

    June1976944.2280.71224.9

    July1976854.6275.51130.1

    August1976753.1241.8994.9

    September1976784.6240.31024.9

    October1976860.4243.31103.7

    November1976832.3229.71062.0

    December1976798.3237.71036.0

    9994.02975.812969.8

    January1977716.2228.8945.0

    February1977799.0266.41065.4

    March19771069.0345.01414.0

    April19771016.3304.01320.3

    May19771041.5303.21344.7

    June19771104.2320.31424.5

    July1977901.8269.51171.3

    August1977919.5281.71201.2

    September1977817.9255.91073.8

    October19771003.2303.31306.5

    November1977870.7283.41154.1

    December1977786.7274.41061.1

    11046.03435.914481.9

    January1978679.6226.6906.2

    February1978768.4274.81043.2

    March19781063.9372.61436.5

    April19781028.8339.61368.4

    May19781143.5373.11516.6

    June19781119.2386.31505.5

    July1978913.7335.01248.7

    August1978944.6339.31283.9

    September1978819.7247.71067.4

    October19781023.7332.81356.5

    November1978898.6318.01216.6

    December1978760.3271.21031.5

    11164.03817.014981.0

    January1979774.1272.21046.3

    February1979831.6283.71115.3

    March19791103.8338.11441.9

    April1979976.3290.11266.4

    May19791042.4294.71337.1

    June1979894.5255.31149.8

    July1979876.2251.41127.6

    August1979908.2268.01176.2

    September1979766.8235.81002.6

    October1979891.5271.81163.3

    November1979767.7226.8994.5

    December1979725.7211.7937.4

    10558.83199.613758.4

    January1980805.8212.01017.8

    February1980811.6203.91015.5

    March1980895.2220.91116.1

    April1980743.3181.2924.5

    May1980696.7177.1873.8

    June1980701.9207.6909.5

    July1980772.6206.8979.4

    August1980685.5173.6859.1

    September1980674.1149.4823.5

    October1980847.5171.81019.3

    November1980698.2156.8855.0

    December1980649.4154.6804.0

    8981.82215.711197.5

    January1981647.5147.9795.4

    February1981764.0168.3932.3

    March1981962.7194.21156.9

    April1981751.3186.2937.5

    May1981733.6181.1914.7

    June1981723.8200.4924.2

    July1981706.8168.6875.4

    August1981801.1189.0990.1

    September1981687.2159.4846.6

    October1981648.8154.9803.7

    November1981584.6145.7730.3

    December1981522.9133.6656.5

    8534.32029.310563.6

    January1982534.7163.7698.4

    February1982632.5193.8826.3

    March1982777.0262.41039.4

    April1982668.9189.4858.3

    May1982774.3228.91003.2

    June1982651.0200.3851.3

    July1982629.5181.4810.9

    August1982608.9171.0779.9

    September1982671.2205.2876.4

    October1982656.0171.5827.5

    November1982743.4217.6961.0

    December1982632.0192.7824.7

    7979.42377.910357.3

    January1983595.8180.0775.8

    February1983627.8182.0809.8

    March1983821.4263.21084.6

    April1983761.9235.2997.1

    May1983836.6259.41096.0

    June1983903.8285.71189.5

    July1983791.6243.31034.9

    August1983740.7235.7976.4

    September1983704.8258.9963.7

    October1983860.8247.91108.7

    November1983781.7253.91035.6

    December1983751.7283.31035.0

    9178.62928.512107.1

    January1984778.5262.51041.0

    February1984841.4298.91140.3

    March1984963.9365.81329.7

    April1984895.6326.51222.1

    May19841047.0379.51426.5

    June1984952.4338.31290.7

    July1984889.8320.41210.2

    August1984814.9291.71106.6

    September1984743.5285.41028.9

    October1984901.5338.71240.2

    November1984802.4316.31118.7

    December1984759.3290.91050.2

    10390.23814.914205.1

    January1985829.9344.11174.0

    February1985833.4356.91190.3

    March1985965.0399.21364.2

    April1985983.3369.61352.9

    May19851068.5404.41472.9

    June1985920.2387.01307.2

    July1985892.4420.21312.6

    August1985995.4327.61323.0

    September19851064.3374.41438.7

    October1985859.1357.91217.0

    November1985758.4342.61101.0

    December1985808.5362.81171.3

    10978.44446.715425.1

    January1986866.8326.21193.0

    February1986829.7335.11164.8

    March1986893.8380.71274.5

    April1986969.3395.51364.8

    May19861068.5438.61507.1

    June1986997.8403.41401.2

    July1986949.7404.31354.0

    August1986949.0373.51322.5

    September19861213.1497.41710.5

    October1986902.1343.81245.9

    November1986778.5322.11100.6

    December1986987.4418.01405.4

    11405.74638.616044.3

    January1987621.8278.0899.8

    February1987774.4354.21128.6

    March1987927.0429.91356.9

    April1987931.3426.91358.2

    May1987861.2412.61273.8

    June1987935.1459.41394.5

    July1987905.7425.21330.9

    August1987959.2417.21376.4

    September1987896.9378.71275.6

    October1987794.5373.81168.3

    November1987729.2358.91088.1

    December1987834.6389.41224.0

    10170.94704.214875.1

    January1988757.2343.71100.9

    February1988880.5402.41282.9

    March1988998.5475.71474.2

    April1988895.1407.91303.0

    May1988966.9459.61426.5

    June19881002.6450.81453.4

    July1988856.0418.71274.7

    August1988878.7412.01290.7

    September1988822.3373.11195.4

    October1988829.0390.71219.7

    November1988786.8378.41165.2

    December1988872.0384.61256.6

    10545.64897.615443.2

    January1989711.9346.91058.8

    February1989745.6358.51104.1

    March1989879.2430.71309.9

    April1989904.6421.51326.1

    May1989963.8445.91409.7

    June1989888.8411.71300.5

    July1989837.1415.11252.2

    August1989963.5451.51415.0

    September1989829.9409.71239.6

    October1989739.2350.51089.7

    November1989672.3353.61025.9

    December1989640.9348.3989.2

    9776.84743.914520.7

    January1990743.3396.21139.5

    February1990716.5335.51052.0

    March1990850.3419.61269.9

    April1990802.1399.41201.5

    May1990872.4435.11307.5

    June1990857.3424.11281.4

    July1990803.2415.11218.3

    August1990786.0387.41173.4

    September1990769.0354.01123.0

    October1990787.8357.31145.1

    November1990661.2321.0982.2

    December1990651.1314.8965.9

    9300.24559.513859.7

    January1991554.6267.6822.2

    February1991621.5289.1910.6

    March1991730.3352.71083.0

    April1991690.7348.91039.6

    May1991769.5385.51155.0

    June1991771.7385.01156.7

    July1991773.2391.01164.2

    August1991690.4355.11045.5

    September1991671.4373.01044.4

    October1991702.0327.51029.5

    November1991606.5310.8917.3

    December1991593.2348.2941.4

    8175.04134.412309.4

    January1992560.5290.6851.1

    February1992651.1320.6971.7

    March1992720.4387.81108.2

    April1992715.8406.11121.9

    May1992733.7416.21149.9

    June1992824.8450.31275.1

    July1992733.6402.11135.7

    August1992644.8399.91044.7

    September1992673.7399.91073.6

    October1992694.5412.91107.4

    November1992601.0369.3970.3

    December1992660.5387.21047.7

    8214.44642.912857.3

    January1993562.2335.0897.2

    February1993593.4363.1956.5

    March1993735.1467.61202.7

    April1993768.7477.11245.8

    May1993812.1504.41316.5

    June1993835.6518.21353.8

    July1993763.5477.01240.5

    August1993697.1436.31133.4

    September1993704.0434.51138.5

    October1993717.3439.71157.0

    November1993667.6448.31115.9

    December1993661.1463.81124.9

    8517.75365.013882.7

    January1994606.1415.81021.9

    February1994698.6448.61147.2

    March1994876.2565.81442.0

    April1994785.8521.61307.4

    May1994814.5539.51354.0

    June1994871.4574.31445.7

    July1994713.2477.51190.7

    August1994782.3514.81297.1

    September1994741.8480.51222.3

    October1994738.0522.51260.5

    November1994670.7498.51169.2

    December1994691.8495.11186.9

    8990.46054.515044.9

    January1995581.5418.61000.1

    February1995649.1450.11099.2

    March1995798.7566.81365.5

    April1995685.9494.01179.9

    May1995825.2565.71390.9

    June1995852.8586.01438.8

    July1995721.3502.81224.1

    August1995806.4526.21332.6

    September1995714.9468.81183.7

    October1995701.6490.61192.2

    November1995644.5496.11140.6

    December1995654.3515.71170.0

    8636.26081.414717.6

    January1996567.0456.71023.7

    February1996690.6518.21208.8

    March1996792.9578.81371.7

    April1996760.9564.81325.7

    May1996871.1617.21488.3

    June1996792.4575.91368.3

    July1996732.4552.01284.4

    August1996749.9552.71302.6

    September1996696.6506.81203.4

    October1996677.9588.21266.1

    November1996590.4532.11122.5

    December1996604.7519.31124.0

    8526.86562.715089.5

    January1997612.1476.81088.9

    February1997648.1502.51150.6

    March1997766.2625.61391.8

    April1997698.7576.91275.6

    May1997771.4630.81402.2

    June1997740.1582.61322.7

    July1997739.6604.51344.1

    August1997740.4576.11316.5

    September1997669.0537.71206.7

    October1997665.3580.71246.0

    November1997563.8553.41117.2

    December1997657.8594.01251.8

    8272.56841.615114.1

    January1998525.9490.91016.8

    February1998615.3528.11143.4

    March1998724.1643.91368.0

    April1998710.9641.31352.2

    May1998793.1714.71507.8

    June1998818.7750.31569.0

    July1998635.8592.81228.6

    August1998675.2553.11228.3

    September1998684.8592.31277.1

    October1998712.4653.91366.3

    November1998562.1577.71139.8

    December1998683.8652.51336.3

    8142.17391.515533.6

    January1999546.0542.91088.9

    February1999670.6614.81285.4

    March1999788.0742.71530.7

    April1999736.7666.01402.7

    May1999830.1757.01587.1

    June1999831.6771.51603.1

    July1999771.0714.91485.9

    August1999798.7680.51479.2

    September1999715.9680.61396.5

    October1999688.5662.51351.0

    November1999639.4635.61275.0

    December1999680.0713.91393.9

    8696.58182.916879.4

    January2000621.8582.41204.2

    February2000769.0729.91498.9

    March2000836.0826.21662.2

    April2000774.7720.01494.7

    May2000833.8784.61618.4

    June2000841.2772.01613.2

    July2000744.2687.11431.3

    August2000806.1736.01542.1

    September2000747.9725.61473.5

    October2000665.4667.81333.2

    November2000601.3631.61232.9

    December2000610.7628.41239.1

    8852.18491.617343.7

    January2001591.7575.51167.2

    February2001701.3651.51352.8

    March2001789.3804.11593.4

    April2001689.7656.61346.3

    May2001814.6784.91599.5

    June2001811.1808.21619.3

    July2001666.8679.91346.7

    August2001726.6721.41448.0

    September2001640.2648.61288.8

    October2001813.4908.51721.9

    November2001603.0721.21324.2

    December2001574.4735.81310.2

    8422.18696.217118.3

    January2002526.0582.21108.2

    February2002624.8681.91306.7

    March2002741.6771.81513.4

    April2002717.6723.81441.4

    May2002758.4747.91506.3

    June2002761.3774.81536.1

    July2002740.7783.31524.0

    August2002829.7875.31705.0

    September2002602.1621.41223.5

    October2002604.7695.91300.6

    November2002570.6632.21202.8

    December2002624.9817.31442.2

    8102.48707.816810.2

    January2003543.2544.41087.6

    February2003581.1636.11217.2

    March2003695.7757.11452.8

    April2003653.0754.81407.8

    May2003726.9846.21573.1

    June2003688.6785.11473.7

    July2003680.1828.91509.0

    August2003738.1890.31628.4

    September2003596.0704.81300.85902.76747.712650.4

    October2003573.8728.91302.7

    November2003557.7701.01258.7

    December2003580.3847.71428.0

    7614.59025.316639.8

    January2004495.4626.21121.6

    February2004582.2692.31274.5

    March2004692.0809.41501.4

    April2004644.0775.31419.3

    May2004742.9882.41625.3

    June2004669.4774.31443.7

    July2004682.0870.91552.9

    August2004636.0790.11426.1

    September2004605.8827.81433.6

    5749.77048.712798.4

  • Puzzles of Sustained High PriceThe Futures Market is predicting oil price to hover around $65/barrel during 2006 and 2007 and to remain in the low $60 range till 2009The oil price increased by more than 40% since 2004While oil shales with an extraction cost of $27-$30 per barrel represents a viable alternative to crude oil in case the price crude oil remain over $40 rangeThe US Office of Naval Petroleum and Oil Shale Reserves estimates there are some 1.6 trillion barrels of oil contained in oil shales around the world, with 6070% of reserves (1.01.2 trillion barrels) in the United StatesThe puzzle why isnt sustained high oil price inducing a relatively quick shift away from oil to other viable alternatives natural gas and oil shales?

  • A Possible Answer: In an Uncertain WorldRisks and uncertainty about future prices make investment in alternative energy sources costlyMarket takes a short term perspective price hike is temporary and there is no incentive for investment in innovationRisk of Peace there is a perception that price of oil will inevitably fall if there is a lasting peace in the Middle EastMarket also cannot rule out the possibilities of new discoveries of oil depositsInnovations for efficient and alternative energy solutions will require governments to bear the cost of innovation and risk

  • Oil in a Globalized EconomySupply and Demand ShocksThe spare capacity in crude oil production is dwindling most of the oil producing countries are running on full capacityProduction in Iraq remains lower than the pre-invasion level current production level is about 1.9 million bpd compared to over 2.5 million bpd in 2002Even if Iraq reaches full capacity production, the impact on the world oil price will be insignificantDemand growth especially from China and India will continue to out pace the growth in oil supply

  • Dwindling Spare Production Capacity

  • And the Demand for Oil is Growing, Albeit at a Slower Rate

  • Economic and Political ConsequencesMacro-economic consequencesSlowdown in global economyEspecially if Central Banks continue focus on inflationHigh/volatile prices forcing countries to think more about what is required for energy securityWorries about distributional consequencesDiscussion in U.S. of windfall profits taxEspecially in light of huge subsidies in last energy bill

  • The Resource CurseParadox: Countries with large endowments of resources have not (on average) done wellMany face high levels of political instabilityMany are not democraticRelated to instability of oil pricesExacerbated by pro-cyclical lendingDutch Disease problemsRent seeking/corruption

  • Keys to Avoiding Resource CurseHow to maximize the fraction of the value of the resources that is available for public purposesMinimizing diversion to private interestsWhether as a result of public sector corruptionOr private sector cheatingHow to ensure that funds are well spentHow to manage macro-economics to avoid Dutch Disease problemsIssues involve both politics and economics

  • Keys to Avoiding Resource CurseCorporations wish to minimize prices paidWhich can sometimes be done by bribing government officialsInstitutional arrangements can make a differenceTransparencyStabilization funds?The design of auctionsDesign of contractsResource curse is not inevitable - some countries have managed their resources wellBotswanaMalaysia

  • There Have Been Problems Even in Advanced Industrial CountriesFire sales in U.S.reduces government revenuesFailure to use well designed auctionsContrast with telecomAlaska and Alabamacheating on contractsEnvironmental problemsValdezAlaska

  • The Rate Of Extraction and Usage of Depletable Natural ResourcesAzerbaijan 20-25 years of supply IMF recommendationlower taxes; uniform rate of spending out of natural resourcesBolivia and Ecuadorresources are about to come online, but the country in recession; education and other budgets being cut drastically to reduce budget deficitsShould they be allowed to borrow against these future incomes to support deficit spending

  • The Rate Of Extraction and Usage of Depletable Natural ResourcesNigeriaa long history of squandered resourcesSpending of natural resource revenues leading to currency appreciationShould it now spend all of its revenues? Chilecreates stabilization fundBut IMF treats spending out of stabilization fund just like any other form of deficit spendingDoes this make sense?Bangladeshlimited reserves of natural gasShould it sell natural gas to India?

  • Political IssuesAngolaBP offers transparency (publish what you pay), government threatens to throw country out, other companies support government position

    SudanProviding support for a government engage in genocide in DarfurThough some in international community wanted to embrace the government for having stopped its ruthless campaign against the SouthWould an embargo simply provide others (like the Chinese) who pay no attention to human rights greater scopeWhat pressure should be brought to bear against Sudan?

    Chadlittle economic opportunity other than oilBut current government likely to misappropriate fundsWith funds used to maintain itself in officeAnd worries about environmental damage of pipelineOil will still be there when a future government takes office

  • Political IssuesVenezuelaVenezuela (also Bolivia, Botswana) demand new contractsClaiming that previous contracts were unfairSometimes signed by uninformed or corrupt government (with or without bribery)Circumstances have changed (high oil prices)What is a fair and efficient contract?

  • Environmental IssuesPapua New Guineamajor gold mine provides substantial fraction of countrys exportsStudies showing that environment damage would be minimal later turn out to flawedNo economically feasible way of producing gold and containing the damageMine has to be shut downShould the mine operator pay for cleaning up the river and the surrounding environment?Or should they just walk away?In the future, what can governments do to prevent this?

  • Environmental IssuesGlobal WarmingMajor concern of our timeOverwhelming evidenceRequires curtailing usage of fossil fuelsHow active should one be in promoting conservation measures?Even if it lowers prices and profitsShould but if prices are lowered, usage may not be curtailedonly change in who gets rentsShould one argue for quantitative restrictionsIs ones primary responsibility to ones shareholders ()in which case one might oppose these measures) or to society more broadly.

  • Cartel and Competition IssuesMarket economy requires competitionCartels are designed to limit competitionShould one support/oppose cartels in ones industryRaise priceUsing arguments about stabilizationCould be used in most other industriesCartels in Oil, aluminum; proposed in steel

  • Many of These Present Conflicts Between Interests of Firm and Interests of the SocietyWhy cannot we simply rely on firms maximizing its market value

    Adam Smiths invisible hand suggests that doing so will ensure economic efficiency

    Modern economic theory helps explain why Maximizing shareholder value does not lead to economic efficiency

  • Adam Smiths Invisible HandAdam Smiths Invisible Hand said that pursuing self-interest leads to economic efficiency But does not ensure either social justice, the preservation of the environment, or human rights

    Many market failures involve externalitiesincluding environmental failures When there are these market failures, maximizing shareholder value does not let to efficiency or societal well being

  • Concluding RemarksGood business goes beyond maximizing shareholder value - There are multiple stakeholdersworkers, customers, communitiesA broader view of corporate governanceReflected in many European countries legislation

    A corporation can do well by doing goodActing in a responsible manner can be good for profitsBut collective action (government regulation) is often required in additionSelf-regulation does not suffice

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