The Oil Entitlements Program and Its Effects on the Domestic Refining Industry.

Demonstrates that the entitlements program reduced the perceived marginal costs of individual refiners and thus provided incentive to increase imports of crude oil and increase refinery output. Also demonstrates that if the refinery industry responded to the oil entitlements incentive, then total costs of individual refiners would increase and cause operation at greater than profit maximizing levels. This paper empirically tests and finds support for the hypotheses that refiners increased their output and their use of foreign crude oil, and decreased refined product imports. Implications: (1) Individual refiners did not realize that collective behavior of the industry would eliminate the subsidy. (2) Eliminating the entitlements program will reduce crude oil imports and increase product imports for all products except distillate fuel oil. (3) Removing entitlements will affect the supply from the domestic refinery industry. Therefore, if there are any product markets with an insignificant amount of imports, eliminating entitlements will cause a shift in the supply situation and prices could change some. 9 pp.