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Reassessing the Oil Security Premium

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Author Info

  • Brown, Stephen P.A.

    ()
    (Resources for the Future)

  • Huntington, Hillard G.

Abstract

World oil supply disruptions lead to U.S. economic losses. Because oil is fungible in an integrated world oil market, increased oil consumption, whether from domestic or imported sources, increases the economic losses associated with oil supply disruptions. Nevertheless, increased U.S. oil production expands stable supplies and dampens oil price shocks, whereas increased U.S. oil imports boosts the share of world oil supply that comes from unstable producers and exacerbates oil price shocks. Some of the economic losses associated with oil supply disruptions—gross domestic product losses and some transfers abroad—are externalities that can be quantified as oil security premiums. To estimate such premiums for domestic and imported oil, we take into account projected world oil market conditions, probable oil supply disruptions, the market response to oil supply disruptions, and the resulting U.S. economic losses. Our estimates quantify the security externalities associated with increased oil use, which derive from the expected U.S. economic losses resulting from potential disruptions in world oil supply.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-10-05.

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Date of creation: 05 Feb 2010
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Handle: RePEc:rff:dpaper:dp-10-05

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Keywords: oil markets; energy security; oil prices; economic activity;

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References

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Cited by:
  1. Soren T. Anderson & Ian W. H. Parry & James M. Sallee & Carolyn Fischer, 2011. "Automobile Fuel Economy Standards: Impacts, Efficiency, and Alternatives," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 89-108, Winter.
  2. Leiby, Paul N. & Rubin, Jonathan, 2013. "Energy security implications of a national low carbon fuel standard," Energy Policy, Elsevier, vol. 56(C), pages 29-40.
  3. Brennan, Timothy J. & Palmer, Karen, 2012. "Energy Efficiency Resource Standards: Economics and Policy," Discussion Papers dp-12-10, Resources For the Future.
  4. Ian W.H. Parry & Jon Strand, 2011. "International Fuel Tax Assessment," IMF Working Papers 11/168, International Monetary Fund.
  5. Parry, Ian W.H. & Evans, David A. & Oates, Wallace E., 2010. "Are Energy Efficiency Standards Justified?," Discussion Papers dp-10-59, Resources For the Future.
  6. Colgan, Jeff, 2011. "Oil and resource-backed aggression," Energy Policy, Elsevier, vol. 39(3), pages 1669-1676, March.

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