International changes in the world oil market: A simulation perspective

Abstract

The oil price increases of October 1973 triggered a set of changes in the international system that promise to have continued, long-term effects. This article begins with a review of the major attempts to model the world oil market and provides syntheses of their char acteristics and worldview. The structure of the International Petroleum Exchange Model developed at MIT is then presented, followed by a set of simulations (forecasts) of future changes in petroleum supply and demand associated with alternative price paths. The simulations are also compared with empirical data to provide some insights into the potential accuracy of the forecasts.