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Irma Alonso Álvarez

20 December 2017
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 8, 2017
28 December 2017
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 8, 2017
21 March 2018
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 2, 2018
Details
Abstract
Oil prices increased from around USD 45 per barrel at end-June 2017 to about USD 65 per barrel at the beginning of March 2018. The main drivers of this increase were stronger than expected growth in global demand, the strategy adopted by the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC countries to adjust their production – partly offset by rising US production – and geopolitical events. This box analyses these factors, based on a structural vector autoregressive (SVAR) model, and assesses whether they are likely to persist.
JEL Code
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
F53 : International Economics→International Relations, National Security, and International Political Economy→International Agreements and Observance, International Organizations
Q41 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Demand and Supply, Prices
Q43 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Energy and the Macroeconomy
30 January 2020
WORKING PAPER SERIES - No. 2368
Details
Abstract
In a simplified theoretical framework we model the strategic interactions between OPEC and non-OPEC producers and the implications for the global oil market. Depending on market conditions, OPEC may find it optimal to act either as a monopolist on the residual demand curve, to move supply in-tandem with non-OPEC, or to offset changes in non-OPEC supply. We evaluate the implications of the model through a Structural Vector Auto Regression (VAR) that separates non-OPEC and OPEC production and allows OPEC to respond to supply increases in non-OPEC countries. This is done by either increasing production (Market Share Targeting) or by reducing it (Price Targeting). We find that Price Targeting shocks absorb half of the fluctuations in oil prices, which have left unexplained by a simpler model (where strategic interactions are not taken into account). Price Targeting shocks, ignored by previous studies, explain around 10 percent of oil price fluctuations and are particularly relevant in the commodity price boom of the 2000s. We confirm that the fall in oil prices at the end of 2014 was triggered by an attempt of OPEC to re-gain market shares. We also find the OPEC elasticity of supply three times as high as that of non-OPEC producers.
JEL Code
Q41 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Demand and Supply, Prices
Q43 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Energy and the Macroeconomy