Center for Business and Economic Research - Ball State University


CBER Data Center
Projects and PublicationsEconomic IndicatorsWeekly CommentaryCommunity Asset InventoryManufacturing Scorecard

About

Commentaries are published weekly and distributed through the Indianapolis Business Journal and many other print and online publications. Disclaimer

RSS Feed

Disclaimer

The views expressed in these commentaries do not reflect those of Ball State University or the Center for Business and Economic Research.

Recent

Educational Attainment, the 21st Century Fund and the Future of SchoolingIndiana ranks 42nd in educational attainment.

Big Savings for Ending Prevailing WageMy statistical models show that repealing state prevailing wage laws save taxpayers money.

Re-Thinking Economic Development A large share of the most mobile families—perhaps half—no longer need to live near where they work.

Money Illusion and InflationPrice fluctuation could cause inflation to last longer, but it didn’t cause the inflation, it simply extends the pain.

View archives

Top Tags

jobs and employment 231
economics 178
education 149
economic development 146
state and local government 129
taxes 123
finance 109
indiana 106
migration and population change 104
budget and spending 104
Browse all tags
Reporter / Admin Login

February 28, 2011

Oil Prices and the Middle East

I must confess that events occurring in Egypt, Libya, Algeria and elsewhere in the region are deeply satisfying to your columnist.  Having spent some time as an exchange officer with the Egyptian Army and having engaged in the liberation of Kuwait (twenty years ago this week), I invested a great deal of my youth in a safer and freer Arab world.   So, whatever else transpires, I am pleased that a liberty bell is ringing in some places yet unsure of its sound. 

All of this is reassuring for those of us with a long view; but as with our own revolution, the short run will not be easy.   Lest we grow impatient with the peoples of the Levant and Middle East, it is worth remembering that it took a dozen agonizing years to craft a constitution.  And this most perfect of human creations required another 89 years and a civil war to right the greatest of our national wrongs.   We ought to be tolerant of imperfection in these countries who seek to be more like us.  This patience may be difficult because disruptions of the status quo will painfully remind us of the interconnectedness of economies, and most especially that of energy markets.  That brings us to oil.

Being a commodity, changes to oil prices are frequent and instantaneous.   Changes to supply or demand of petroleum in the Middle East affect the price at the pump in the Midwest within hours.  It would be convenient to grouse about oil companies, but blaming them is of no use.  I do not say this because I disbelieve that oil companies are money-grubbing profit maximizers, but rather because I know that they are.  They just cannot manipulate markets; otherwise we would long since had $100 a barrel prices.  

The frequent changes to petroleum prices are obviously linked to our own prices at the pump.  So too are such things as war, rumors of war, natural disasters and the like.  The coincidence of frequent price changes along with these four horsemen of the apocalypse provides fertile ground for economic research. 

So, this week I resurrected one of my statistical models of gasoline prices.  This model predicts monthly gas price changes as a function of recent history, the unemployment and interest rates, trends and seasons and big events in the Middle East.  I have data from the mid-1970s to today.

Some of the answers the model gives are reassuring: a growing economy, the cost of buying drilling and storage equipment explain most price changes.  This model tells us that short-term turbulence in the Middle East has no discernable effect on gas prices.  Even Desert Storm’s effect was short and muted.  But, anything that has a doubtful or long-term effect has a large and immediate influence on gas prices.  Desert Shield, in the uncertain months leading up to war, saw a nearly 10 percent per month change in prices at the pump. That is likely to happen again, but living with $4.00 a gallon is still better than liberating Kuwait.

Link to this commentary: https://commentaries.cberdata.org/556/oil-prices-and-the-middle-east

Tags: prices and inflation, middle east


About the Author

Michael Hicks cberdirector@bsu.edu

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Hicks earned doctoral and master’s degrees in economics from the University of Tennessee and a bachelor’s degree in economics from Virginia Military Institute. He has authored two books and more than 60 scholarly works focusing on state and local public policy, including tax and expenditure policy and the impact of Wal-Mart on local economies.

© Center for Business and Economic Research, Ball State University

About Ball State CBER Data Center

Ball State CBER Data Center is one-stop shop for economic data including demographics, education, health, and social capital. Our easy-to-use, visual web tools offer data collection and analysis for grant writers, economic developers, policy makers, and the general public.

Ball State CBER Data Center (cberdata.org) is a product of the Center for Business and Economic Research at Ball State University. CBER's mission is to conduct relevant and timely public policy research on a wide range of economic issues affecting the state and nation. Learn more.

Terms of Service

Center for Business and Economic Research

Ball State University • Whitinger Business Building, room 149
2000 W. University Ave.
Muncie, IN 47306-0360
Phone:
765-285-5926
Email:
cber@bsu.edu
Website:
www.bsu.edu/cber
Facebook:
www.facebook.com/BallStateCBER
Twitter:
www.twitter.com/BallStateCBER
Close