Profitability and supply price in the US domestic oil industry: implications for the political economy of oil in the twenty-first century

Abstract

In May 2001, the US Government's National Energy Policy Development Group proposed to increase investment in domestic oil resources and to diversify further the sourcing of US oil imports by increasing production in new petroleum provinces. The paper argues that both strands of this policy are dependent upon a third, unstated, objective--to ensure that OPEC retains sufficient market power to prevent the sort of collapse in world oil prices that occurred in 1998--99. The consequences of that collapse, when the real price of US oil fell to its lowest level in 53 years, are explored. Finally, it is argued that the outcome of the crisis was a rapprochement between OPEC and the US. It is suggested that the consensus between the US and OPEC as to the desired range within which the world oil price should move is likely to survive any temporary political disturbances. Copyright 2003, Oxford University Press.