ABSTRACT
The market for internationally traded crude oil is full of imperfections. Price formation has never been determined by market forces. Apart from the assumption that a mechanism is devised for adjusting the nominal price to maintain its value in real terms, price planning should take into account the fact that price elasticity of demand in the short term is very low. In the medium and long terms it may be higher for products which have some substitutes such as fuel oil for power stations. For petroleum-exporting countries, oil prices are measured by the degree of economic development achieved through the transformation of oil-generated revenues to fixed capital formation and social development. In this connection, production levels and prices are closely tied to the development process. Energy-intensive choices of technique coupled with very low product prices in OPEC countries are leading to very high growth rates in energy consumption.
