Ansari, Dawud (2017): OPEC, Saudi Arabia, and the Shale Revolution: Insights from Equilibrium Modelling and Oil Politics.
Download (1MB) | Preview
Why did OPEC not cut oil production in the wake of 2014’s price fall? This study aims at aiding the mostly qualitative discussion with quantitative evidence from computing quarterly partial market equi-libria Q4 2011 – Q4 2015 under present short-term profit maximisation and different competition set-ups. Although the model performs reasonably well in explaining pre-2014 prices, all setups fail to cap-ture low prices, which fall even beyond perfect competition outcomes. This result is robust with respect to large variations in cost parameters. Rejecting present short-term profit maximisation, as well as a qualitative discussion of Saudi Arabian politics and the shale oil revolution, lead to the conclusion that the price drop of 2014-16 was most plausibly the result of an attempt to defend market shares and to test for shale oil resilience, besides being fuelled by other factors such as tightening climate policies. Although shale oil might have increased competition permanently (as supported by model results), the agreement of December 2016 should not be misunderstood as an OPEC defeat.
|Item Type:||MPRA Paper|
|Original Title:||OPEC, Saudi Arabia, and the Shale Revolution: Insights from Equilibrium Modelling and Oil Politics|
|Keywords:||Crude oil; OPEC; Shale oil; Oil price; Equilibrium modelling; Saudi Arabia; Shale revolution|
|Subjects:||C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
L - Industrial Organization > L7 - Industry Studies: Primary Products and Construction > L71 - Mining, Extraction, and Refining: Hydrocarbon Fuels
O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East
Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q31 - Demand and Supply ; Prices
Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q35 - Hydrocarbon Resources
|Depositing User:||Dawud Ansari|
|Date Deposited:||21 Apr 2017 08:13|
|Last Modified:||21 Apr 2017 08:14|
Aguilera, R.F., 2014. Production costs of global conventional and unconventional petroleum. Energy Policy 64, 134-140.
Aguilera, R.F., Radetzki, M., 2015. The price of oil. Cambridge University Press.
Al-Qahtani, A., Balistreri, E., Dahl, C., 2008. Literature review on oil market modeling and OPEC’s behavior. Paper, Division of Economics and Business, Colorado School of Mines
Albassam, B.A., 2015. Economic diversification in Saudi Arabia: Myth or reality? Resources Policy 44, 112-117.
Alhajji, A.F., Huettner, D., 2000. OPEC and world crude oil markets from 1973 to 1994: cartel, oligopoly, or competitive? The Energy Journal, 31-60.
Alkhathlan, K., Gately, D., Javid, M., 2014. Analysis of Saudi Arabia's behavior within OPEC and the world oil market. Energy Policy 64, 209-225.
Almoguera, P.A., Douglas, C.C., Herrera, A.M., 2011. Testing for the cartel in OPEC: non-cooperative collusion or just non-cooperative? Oxford Review of Economic Policy 27, 144-168.
Alquist, R., Kilian, L., Vigfusson, R.J., 2013. Forecasting the price of oil. Handbook of economic forecasting 2, 427-507.
Ansari, D., 2016. Resource curse contagion in the case of Yemen. Resources Policy 49, 444-454.
Arezki, R., Blanchard, O., 2014. Seven questions about the recent oil price slump. IMFdirect-The IMF Blog.
Assaad, R., 2014. Making sense of Arab labor markets: the enduring legacy of dualism. IZA Journal of Labor & Development 3, 1-25.
Bachmeier, L.J., Griffin, J.M., 2006. Testing for market integration crude oil, coal, and natural gas. The Energy Journal, 55-71.
Baffes, J., Kose, M.A., Ohnsorge, F., Stocker, M., 2015. The great plunge in oil prices: Causes, consequences, and policy responses. Available at SSRN: http://dx.doi.org/10.2139/ssrn.2624398.
Baumeister, C., Kilian, L., 2016. Understanding the Decline in the Price of Oil since June 2014. Journal of the Association of Environmental and Resource Economists 3, 131-158.
Behar, A., Ritz, R.A., 2017. OPEC vs US shale: Analyzing the shift to a market-share strategy. Energy Economics 63, 185-198.
Belotti, P., 2009. Couenne: a user’s manual. Technical Report.
Blas, J., Smith, G., 2016. In U-Turn, Saudis Choose Higher Prices Over Free Oil Markets. Bloomberg.
Bolckem, S., 2004. Cartel formation and oligopoly structure: a new assessment of the crude oil market. Applied Economics 36, 1355-1369.
Bonami, P., Biegler, L.T., Conn, A.R., Cornuéjols, G., Grossmann, I.E., Laird, C.D., Lee, J., Lodi, A., Margot, F., Sawaya, N., 2008. An algorithmic framework for convex mixed integer nonlinear programs. Discrete Optimization 5, 186-204.
Brandt, A.R., Millard-Ball, A., Ganser, M., Gorelick, S.M., 2013. Peak oil demand: the role of fuel efficiency and alternative fuels in a global oil production decline. Environmental science & technology 47, 8031-8041.
Bridge, G., Wood, A., 2010. Less is more: Spectres of scarcity and the politics of resource access in the upstream oil sector. Geoforum 41, 565-576.
Caldara, D., Cavallo, M., Iacoviello, M., 2016. Oil Price Elasticities and Oil Price Fluctuations. Mimeo, Federal Reserve Board.
Chen, H., Liao, H., Tang, B.-J., Wei, Y.-M., 2016. Impacts of OPEC's political risk on the international crude oil prices: An empirical analysis based on the SVAR models. Energy Economics 57, 42-49.
Cherif, R., Hasanov, F., 2014. Soaring of the Gulf Falcons: Diversification in the GCC Oil Exporters in Seven Propositions. International Monetary Fund.
Colgan, J.D., 2014. The emperor has no clothes: The limits of OPEC in the global oil market. International Organization 68, 599-632.
Coudert, V., Mignon, V., 2016. Reassessing the empirical relationship between the oil price and the dollar. Energy Policy 95, 147-157.
Coy, P., 2015. Shale Doesn't Swing Oil Prices—OPEC Does. BloombergBusinessweek.
Daiss, T., 2016. What Can Saudi Arabia Do As Oil Prices Collapse? , Forbes.
Dale, S., 2016. New Economics of Oil. Oil and Gas, Natural Resources, and Energy Journal 1, 3.
Elbadawi, I., Gelb, A., 2010. Oil, economic diversification and development in the Arab World. Economic Research Forum Policy Research Report.
Fantazzini, D., 2016. The oil price crash in 2014/15: Was there a (negative) financial bubble? Energy Policy 96, 383-396.
Fattouh, B., Mahadeva, L., 2013. OPEC: What Difference Has It Made? Annu. Rev. Resour. Econ. 5, 427-443.
Fattouh, B., Poudineh, R., Sen, A., 2016. The dynamics of the revenue maximization–market share trade-off: Saudi Arabia’s oil policy in the 2014–15 price fall. Oxford Review of Economic Policy 32, 223-240.
Fattouh, B., Sen, A., 2015. Saudi Arabia Oil Policy: More than Meets the Eye? Working Paper.
Fattouh, B., Sen, A., 2016a. OPEC Deal or No Deal? This is Not the Question. Oxford energy comment.
Fattouh, B., Sen, A., 2016b. Saudi Arabia’s Vision 2030, Oil Policy and the Evolution of the Energy Sector. Oxford energy comment.
Ferris, M.C., Munson, T.S., 2000. Complementarity problems in GAMS and the PATH solver. Journal of Economic Dynamics and Control 24, 165-188.
Fortuny-Amat, J., McCarl, B., 1981. A representation and economic interpretation of a two-level programming problem. Journal of the operational Research Society 32, 783-792.
Gause, G., 2015. Sultans of Swing? The Geopolitics of Falling Oil Prices. Brookings Doha Centre. Golombek, R., Gjelsvik, E., Rosendahl, K.E., 1995. Effects of liberalizing the natural gas markets in Western Europe. The Energy Journal, 85-111.
Griffin, J.M., 1985. OPEC behavior: a test of alternative hypotheses. The American Economic Review 75, 954-963.
Griffin, J.M., 2015. Petro-Nationalism: The Futile Search for Oil Security. Energy Journal 36.
Griffin, J.M., Neilson, W.S., 1994. The 1985-86 Oil Price Collapse and Afterwards: What Does Game Theory Add? Economic Inquiry 32, 543.
Gülen, S.G., 1996. Is OPEC a cartel? Evidence from cointegration and causality tests. The Energy Journal, 43-57.
Gülen, S.G., 1999. Regionalization in the world crude oil market: further evidence. The Energy Journal, 125-139. Henderson, J., Fattouh, B., 2016. Russia and OPEC: Uneasy Partners. Oxford energy comment.
Hochman, G., Zilberman, D., 2015. The political economy of OPEC. Energy Economics 48, 203-216.
Huppmann, D., 2013. Endogenous Shifts in OPEC Market Power: A Stackelberg Oligopoly with Fringe.
Huppmann, D., Egging, R., 2014. Market power, fuel substitution and infrastructure–A large-scale equilibrium model of global energy markets. Energy 75, 483-500.
Huppmann, D., Holz, F., 2012. Crude Oil Market Power-A Shift in Recent Years? The Energy Journal 33, 1.
Huppmann, D., Livingston, D., 2015. Stumbling to a New Equ'Oil'Ibrium: Understanding the Current Upheaval in the Global Crude Oil Market. International Association for Energy Economics Energy Forum Index Third Quarter 2015.
Husain, M.A.M., Arezki, M.R., Breuer, M.P., Haksar, M.V., Helbling, M.T., Medas, P.A., Sommer, M., 2015. Global implications of lower oil prices. International Monetary Fund.
Javan, A., Zahran, N., 2015. Dynamic panel data approaches for estimating oil demand elasticity. OPEC Energy Review 39, 53-76.
Johany, A.D., 1979. OPEC and the price of oil: cartelization or alteration of property rights. J. Energy Dev.;(United States) 5.
Kaletsky, A., 2015. A new ceiling for oil prices. Project Syndicate. January 14.
Khan, M.I., 2017. Falling oil prices: Causes, consequences and policy implications. Journal of Petroleum Science and Engineering 149, 409-427.
Kisswani, K., 2014. OPEC and political considerations when deciding on oil extraction. Journal of Economics and Finance 38, 96-118.
Kisswani, K.M., 2016. Does OPEC act as a cartel? Empirical investigation of coordination behavior. Energy Policy 97, 171-180.
Krane, J., 2015. A refined approach: Saudi Arabia moves beyond crude. Energy Policy 82, 99-104.
Langer, L., Huppmann, D., Holz, F., 2016. Lifting the US crude oil export ban: A numerical partial equilibrium analysis. Energy Policy 97, 258-266.
Loutia, A., Mellios, C., Andriosopoulos, K., 2016. Do OPEC announcements influence oil prices? Energy Policy 90, 262-272.
Mabro, R., 1992. OPEC and the Price of Oil. The energy journal 13, 1-17.
Malova, A., van der Ploeg, F., 2017. Consequences of lower oil prices and stranded assets for Russia's sustainable fiscal stance. Energy Policy 105, 27-40.
Mănescu, C.B., Nuño, G., 2015. Quantitative effects of the shale oil revolution. Energy Policy 86, 855-866.
McGlade, C., Ekins, P., 2015. The geographical distribution of fossil fuels unused when limiting global warming to 2 [deg] C. Nature 517, 187-190.
MEES, 2014. MEES Interview With Saudi Oil Minister Ali Naimi.
Mohaddes, K., Raissi, M., 2016. The US oil supply revolution and the global economy. Globalization and Monetary Policy Institute Working Paper.
Nusair, S.A., 2016. The effects of oil price shocks on the economies of the Gulf Co-operation Council countries: Nonlinear analysis. Energy Policy 91, 256-267.
Okullo, S.J., Reynès, F., 2016. Imperfect cartelization in OPEC. Energy Economics 60, 333-344.
Plaut, S.E., 1981. OPEC is Not a Cartel. Challenge 24, 18-24.
Reuters, 2016. OPEC fails to agree policy but Saudis pledge no shocks. Shamseddine, R., El Gamal, R., Lawler, A.
Reynolds, D.B., Pippenger, M.K., 2010. OPEC and Venezuelan oil production: Evidence against a cartel hypothesis. Energy Policy 38, 6045-6055.
Richards, A., Waterbury, J., 2009. A political economy of the Middle East. Westview Press.
Riedel, B., 2016. The year Saudi Arabia wants to forget. Al Monitor Gulf Pulse.
Sinn, H.-W., 2012. The green paradox: a supply-side approach to global warming. MIT press.
Smith, J.L., 2005. Inscrutable OPEC? Behavioral Tests of the Cartel Hypothesis. The Energy Journal 26, 51.
Speight, J.G., 2012. Shale oil production processes. Gulf Professional Publishing.
Stevens, P., Lahn, G., Kooroshy, J., 2015. The Resource Curse Revisited. Chatham House Research Paper, London. The Economist, 2015. After OPEC. The Ecoomist print edition.
The Telegraph, 2016. No end to oil rout as Saudi Arabia plays tough. Evans-Pritchard, A.
The Wall Street Journal, 2015. Saudi Arabia’s Celebrity Oil Minister Ali al-Naimi Prepares for Potential OPEC Swan Song. Said, S., Faucon, B.
Toews, G., Naumov, A., 2015. The Relationship Between Oil Price and Costs in the Oil Industry. The Energy Journal 36.
Tokic, D., 2015. The 2014 oil bust: Causes and consequences. Energy Policy 85, 162-169.
Van de Graaf, T., 2017. Is OPEC dead? Oil exporters, the Paris agreement and the transition to a post-carbon world. Energy Research & Social Science 23, 182-188.
Van de Graaf, T., Verbruggen, A., 2015. The oil endgame: Strategies of oil exporters in a carbon-constrained world. Environmental Science & Policy 54, 456-462.
van der Ploeg, F., 2016. Fossil fuel producers under threat. Oxford Review of Economic Policy 32, 206-222.