Petroleum Regulation

The False Dilemma of Decontrol

by Charles E. Phelps, Rodney T. Smith

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A comprehensive analysis of the interrelationships between price controls, oil production technology, product demand, tariff policy, and world trade, as applied to the petroleum industry. A brief history of petroleum industry price controls provides institutional and technical background for the analysis. Price controls, recently extended until 1979, were intended to combat higher prices for refined products, even at the cost of increasing U.S. dependence on foreign oil. While the authors concur that the extension of controls increased U.S. dependence, they show that prices of refined products have not been affected by the controls. Rather, the controls redistributed as much as $5-6 billion annually among crude oil producers and refiners. The issue of total decontrol of the petroleum industry is, in effect, a political contest between those who support reduced dependence on foreign oil and those who benefit from the transfers.

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