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Frederic Reynes - One of the best experts on this subject based on the ideXlab platform.
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imperfect cartelization in OPEC
Social Science Research Network, 2016Co-Authors: Samuel Jovan Okullo, Frederic ReynesAbstract:A model of global oil production is applied to study cartelization by OPEC countries. We define a measure for the degree of cooperation, analogous to the market conduct parameter of Cyert et al., 1973, Geroski et al., 1987, Lofaro, 1999, and Symeonidis, 2000. This parameter is used to assess the incentives for different OPEC members to collude. We find that heterogeneity in OPEC and the supplies of the non-OPEC fringe create strong incentives against OPEC cooperation. OPEC’s optimal supply strategy although observed to be substantially more restrictive than that of a Cournot-Nash oligopoly, is found to still be more accommodative than that of a perfect cartel. The strategy involves allocating larger than proportionate quotas to smaller and relatively costlier producers as if to bribe their participation in the cartel. This, is in contrast to predictions of the standard cartel model that such producers should be allocated relatively more stringent quotas. Furthermore, we find that cartel collusion is likely to be sustained for elastic than inelastic demand. Since global oil demand is well known to be inelastic, this observation provides another structural explanation for why OPEC behavior is inconsistent with that of a perfect cartel. Our study points to multiple headwinds that limit OPEC’s ability to markup the oil price.
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imperfect cartelization in OPEC
Energy Economics, 2016Co-Authors: Samuel Jovan Okullo, Frederic ReynesAbstract:A model of global oil production is applied to study cartelization by OPEC countries. We define a measure for the degree of cooperation, analogous to the market conduct parameter of Cyert et al. (1973), Geroski et al. (1987), Lofaro (1999), and Symeonidis (2000). This parameter is used to assess the incentives of different OPEC members to collude. We find that heterogeneity in OPEC and the supplies of the non-OPEC fringe create strong incentives against collusion. More specifically, OPEC's supply strategy, although observed to be substantially more restrictive than that of a Cournot–Nash oligopoly, is found to still be more accommodative than that of a perfect cartel. The strategy involves allocating larger than proportionate quotas to smaller and relatively costlier producers, as if to bribe their participation in the cartel. This is in contrast to predictions of the standard cartel model that such producers should be allocated relatively more stringent quotas. Furthermore, we demonstrate that cartel collusion is more likely to be sustained for elastic than for inelastic demand. Since global oil demand is well known to be inelastic, this observation provides another structural explanation for why OPEC behavior is inconsistent with that of a perfect cartel. Our study points to multiple headwinds that limit OPEC's ability to mark up the oil price. © 2016 Elsevier B.V.
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Imperfect Cartelization in OPEC
Energy Economics, 2016Co-Authors: Samuel Jovan Okullo, Frederic ReynesAbstract:A model of global oil production is applied to study cartelization by OPEC countries. Writing out the shadow price on quota allocations so as to draw correspondence to coefficients of cooperation (Cyert et al. 1973), we examine the incentives that different OPEC members to collude. We find that heterogeneity in OPEC and the supplies of the non-OPEC fringe create strong incentives against OPEC cooperation. OPEC’s optimal supply strategy although observed to be substantially more restrictive than that of a Cournot-Nash oligopoly, is found to still be more accommodative than that of a perfect cartel. The strategy involves allocating larger than proportionate quotas to smaller and relatively costlier producers as if to bribe their participation in the cartel. This is contrary to predictions of the standard cartel model that such producers should be allocated relatively more stringent quotas. Furthermore, we find that cartel collusion is likely to be sustained for elastic than inelastic demand. Since global oil demand is well known to be inelastic, this observation provides another structural explanation for why OPEC behavior is inconsistent with that of a perfect cartel. Our study points to multiple headwinds that limit OPECs ability to raise long-run global oil prices.
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can reserve additions in mature crude oil provinces attenuate peak oil
Energy, 2011Co-Authors: Samuel Jovan Okullo, Frederic ReynesAbstract:Following the peak in US crude oil production 30 years ago, more and more non-OPEC producers have seen their production decline as a result of resource depletion. OPEC, on the other hand has extracted a comparatively smaller proportion of its reserve base. Given that new non-OPEC discoveries are growing ever limited, we explore the role of reserve additions and OPEC in determining future crude oil supply: we formulate a model that embodies a weak and strong OPEC for various rates of reserve additions in mature crude oil provinces. Using this geo-economic partial equilibrium model that generates a peak in crude oil production, we show that although potential conventional crude oil resources may seem abundant, OPEC strategy could cause substantial crude oil reserve depletion in non-OPEC countries by 2050 (or even earlier) given likely depletion rates. In addition, we find that reducing reserve decline rates in mature crude oil provinces not only extends the time to exhaustion substantially, but also discourages OPEC from engaging in an overly strategic extraction behavior.
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can reserve additions in mature crude oil provinces attenuate peak oil
Energy, 2011Co-Authors: Samuel Jovan Okullo, Frederic ReynesAbstract:Abstract Following the peak in US crude oil production 30 years ago, more and more non-OPEC producers have seen their production decline as a result of resource depletion. OPEC, on the other hand has extracted a comparatively smaller proportion of its reserve base. Given that new non-OPEC discoveries are growing ever limited, we explore the role of reserve additions and OPEC in determining future crude oil supply: we formulate a model that embodies a weak and strong OPEC for various rates of reserve additions in mature crude oil provinces. Using this geo-economic partial equilibrium model that generates a peak in crude oil production, we show that although potential conventional crude oil resources may seem abundant, OPEC strategy could cause substantial crude oil reserve depletion in non-OPEC countries by 2050 (or even earlier) given likely depletion rates. In addition, we find that reducing reserve decline rates in mature crude oil provinces not only extends the time to exhaustion substantially, but also discourages OPEC from engaging in an overly strategic extraction behavior.
Samuel Jovan Okullo - One of the best experts on this subject based on the ideXlab platform.
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imperfect cartelization in OPEC
Social Science Research Network, 2016Co-Authors: Samuel Jovan Okullo, Frederic ReynesAbstract:A model of global oil production is applied to study cartelization by OPEC countries. We define a measure for the degree of cooperation, analogous to the market conduct parameter of Cyert et al., 1973, Geroski et al., 1987, Lofaro, 1999, and Symeonidis, 2000. This parameter is used to assess the incentives for different OPEC members to collude. We find that heterogeneity in OPEC and the supplies of the non-OPEC fringe create strong incentives against OPEC cooperation. OPEC’s optimal supply strategy although observed to be substantially more restrictive than that of a Cournot-Nash oligopoly, is found to still be more accommodative than that of a perfect cartel. The strategy involves allocating larger than proportionate quotas to smaller and relatively costlier producers as if to bribe their participation in the cartel. This, is in contrast to predictions of the standard cartel model that such producers should be allocated relatively more stringent quotas. Furthermore, we find that cartel collusion is likely to be sustained for elastic than inelastic demand. Since global oil demand is well known to be inelastic, this observation provides another structural explanation for why OPEC behavior is inconsistent with that of a perfect cartel. Our study points to multiple headwinds that limit OPEC’s ability to markup the oil price.
-
imperfect cartelization in OPEC
Energy Economics, 2016Co-Authors: Samuel Jovan Okullo, Frederic ReynesAbstract:A model of global oil production is applied to study cartelization by OPEC countries. We define a measure for the degree of cooperation, analogous to the market conduct parameter of Cyert et al. (1973), Geroski et al. (1987), Lofaro (1999), and Symeonidis (2000). This parameter is used to assess the incentives of different OPEC members to collude. We find that heterogeneity in OPEC and the supplies of the non-OPEC fringe create strong incentives against collusion. More specifically, OPEC's supply strategy, although observed to be substantially more restrictive than that of a Cournot–Nash oligopoly, is found to still be more accommodative than that of a perfect cartel. The strategy involves allocating larger than proportionate quotas to smaller and relatively costlier producers, as if to bribe their participation in the cartel. This is in contrast to predictions of the standard cartel model that such producers should be allocated relatively more stringent quotas. Furthermore, we demonstrate that cartel collusion is more likely to be sustained for elastic than for inelastic demand. Since global oil demand is well known to be inelastic, this observation provides another structural explanation for why OPEC behavior is inconsistent with that of a perfect cartel. Our study points to multiple headwinds that limit OPEC's ability to mark up the oil price. © 2016 Elsevier B.V.
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Imperfect Cartelization in OPEC
Energy Economics, 2016Co-Authors: Samuel Jovan Okullo, Frederic ReynesAbstract:A model of global oil production is applied to study cartelization by OPEC countries. Writing out the shadow price on quota allocations so as to draw correspondence to coefficients of cooperation (Cyert et al. 1973), we examine the incentives that different OPEC members to collude. We find that heterogeneity in OPEC and the supplies of the non-OPEC fringe create strong incentives against OPEC cooperation. OPEC’s optimal supply strategy although observed to be substantially more restrictive than that of a Cournot-Nash oligopoly, is found to still be more accommodative than that of a perfect cartel. The strategy involves allocating larger than proportionate quotas to smaller and relatively costlier producers as if to bribe their participation in the cartel. This is contrary to predictions of the standard cartel model that such producers should be allocated relatively more stringent quotas. Furthermore, we find that cartel collusion is likely to be sustained for elastic than inelastic demand. Since global oil demand is well known to be inelastic, this observation provides another structural explanation for why OPEC behavior is inconsistent with that of a perfect cartel. Our study points to multiple headwinds that limit OPECs ability to raise long-run global oil prices.
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can reserve additions in mature crude oil provinces attenuate peak oil
Energy, 2011Co-Authors: Samuel Jovan Okullo, Frederic ReynesAbstract:Following the peak in US crude oil production 30 years ago, more and more non-OPEC producers have seen their production decline as a result of resource depletion. OPEC, on the other hand has extracted a comparatively smaller proportion of its reserve base. Given that new non-OPEC discoveries are growing ever limited, we explore the role of reserve additions and OPEC in determining future crude oil supply: we formulate a model that embodies a weak and strong OPEC for various rates of reserve additions in mature crude oil provinces. Using this geo-economic partial equilibrium model that generates a peak in crude oil production, we show that although potential conventional crude oil resources may seem abundant, OPEC strategy could cause substantial crude oil reserve depletion in non-OPEC countries by 2050 (or even earlier) given likely depletion rates. In addition, we find that reducing reserve decline rates in mature crude oil provinces not only extends the time to exhaustion substantially, but also discourages OPEC from engaging in an overly strategic extraction behavior.
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can reserve additions in mature crude oil provinces attenuate peak oil
Energy, 2011Co-Authors: Samuel Jovan Okullo, Frederic ReynesAbstract:Abstract Following the peak in US crude oil production 30 years ago, more and more non-OPEC producers have seen their production decline as a result of resource depletion. OPEC, on the other hand has extracted a comparatively smaller proportion of its reserve base. Given that new non-OPEC discoveries are growing ever limited, we explore the role of reserve additions and OPEC in determining future crude oil supply: we formulate a model that embodies a weak and strong OPEC for various rates of reserve additions in mature crude oil provinces. Using this geo-economic partial equilibrium model that generates a peak in crude oil production, we show that although potential conventional crude oil resources may seem abundant, OPEC strategy could cause substantial crude oil reserve depletion in non-OPEC countries by 2050 (or even earlier) given likely depletion rates. In addition, we find that reducing reserve decline rates in mature crude oil provinces not only extends the time to exhaustion substantially, but also discourages OPEC from engaging in an overly strategic extraction behavior.
Noha H A Razek - One of the best experts on this subject based on the ideXlab platform.
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OPEC and non OPEC production global demand and the financialization of oil
Research in International Business and Finance, 2019Co-Authors: Noha H A Razek, Nyakundi M MichiekaAbstract:Abstract Does OPEC still matter? How do OPEC and non-OPEC oil production, global oil demand, and the role of oil as a financial asset influence the price of oil? What is the mechanism through which China affects the price of oil? These questions reveal the need for a better understanding of oil market dynamics. Building on EIA (2018a); Ratti and Vespignani (2015), and Kaufmann et al. (2004), we account for the prolonged oil price drop of 2014 and examine OPEC and non-OPEC production, the world’s and China’s demand for oil, and the role of oil as a financial asset by employing a vector autoregressive (VAR) model which accounts for cyclical movements. Using monthly data between 1997M01 and 2018M04, the model reveals: (a) OPEC significantly balances oil markets, implying that OPEC still matters; (b) the role of oil as a financial asset is integral in explaining oil price movements; (c) U.S. oil production affects oil prices, but the influence of other non-OPEC production should not be underestimated; (d) China’s demand for crude oil affects oil prices, but focusing on China rather than global demand overlooks other important market segments, as well as dynamics in the oil market and global economy; and (e) China’s impact on oil prices is driven by China’s exports of refined products and domestic demand.
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OPEC and non OPEC production global demand and the financialization of oil
Social Science Research Network, 2019Co-Authors: Noha H A Razek, Nyakundi M MichiekaAbstract:Does OPEC still matter? How do OPEC and non-OPEC oil production, global oil demand, and the role of oil as a financial asset influence oil prices? What is the mechanism through which China affects oil prices? These questions reveal the need for a better understanding of oil market dynamics. Our analysis builds on EIA (2018), Ratti and Vespignani (2015), and Kaufman et al. (2004). We extend these analyses by considering the 2014 prolonged oil price drop and accounting for OPEC and non-OPEC production, global demand for oil as well as China’s demand, and the role of oil as a financial asset by employing a vector autoregressive (VAR) model which accounts for cyclical movements. Using monthly data between 1997:01 and 2018:04, the model reveals that: (a) OPEC significantly balances oil markets, implying that OPEC still matters; (b) the role of oil as a financial asset is integral in explaining oil price movements; (c) U.S. oil production affects oil prices, but the influence of other non-OPEC production should not be underestimated; (d) China’s demand for crude oil affects oil prices, but focusing on China rather than global demand overlooks other important market segments, dynamics in the oil market and global economy, and the retaliation risk associated with international trade tensions; and (e) China’s impact on oil prices is driven by domestic demand and the increase in China’s exports of refined products.
Nyakundi M Michieka - One of the best experts on this subject based on the ideXlab platform.
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OPEC and non OPEC production global demand and the financialization of oil
Research in International Business and Finance, 2019Co-Authors: Noha H A Razek, Nyakundi M MichiekaAbstract:Abstract Does OPEC still matter? How do OPEC and non-OPEC oil production, global oil demand, and the role of oil as a financial asset influence the price of oil? What is the mechanism through which China affects the price of oil? These questions reveal the need for a better understanding of oil market dynamics. Building on EIA (2018a); Ratti and Vespignani (2015), and Kaufmann et al. (2004), we account for the prolonged oil price drop of 2014 and examine OPEC and non-OPEC production, the world’s and China’s demand for oil, and the role of oil as a financial asset by employing a vector autoregressive (VAR) model which accounts for cyclical movements. Using monthly data between 1997M01 and 2018M04, the model reveals: (a) OPEC significantly balances oil markets, implying that OPEC still matters; (b) the role of oil as a financial asset is integral in explaining oil price movements; (c) U.S. oil production affects oil prices, but the influence of other non-OPEC production should not be underestimated; (d) China’s demand for crude oil affects oil prices, but focusing on China rather than global demand overlooks other important market segments, as well as dynamics in the oil market and global economy; and (e) China’s impact on oil prices is driven by China’s exports of refined products and domestic demand.
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OPEC and non OPEC production global demand and the financialization of oil
Social Science Research Network, 2019Co-Authors: Noha H A Razek, Nyakundi M MichiekaAbstract:Does OPEC still matter? How do OPEC and non-OPEC oil production, global oil demand, and the role of oil as a financial asset influence oil prices? What is the mechanism through which China affects oil prices? These questions reveal the need for a better understanding of oil market dynamics. Our analysis builds on EIA (2018), Ratti and Vespignani (2015), and Kaufman et al. (2004). We extend these analyses by considering the 2014 prolonged oil price drop and accounting for OPEC and non-OPEC production, global demand for oil as well as China’s demand, and the role of oil as a financial asset by employing a vector autoregressive (VAR) model which accounts for cyclical movements. Using monthly data between 1997:01 and 2018:04, the model reveals that: (a) OPEC significantly balances oil markets, implying that OPEC still matters; (b) the role of oil as a financial asset is integral in explaining oil price movements; (c) U.S. oil production affects oil prices, but the influence of other non-OPEC production should not be underestimated; (d) China’s demand for crude oil affects oil prices, but focusing on China rather than global demand overlooks other important market segments, dynamics in the oil market and global economy, and the retaliation risk associated with international trade tensions; and (e) China’s impact on oil prices is driven by domestic demand and the increase in China’s exports of refined products.
Robert K Kaufmann - One of the best experts on this subject based on the ideXlab platform.
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oil demand shocks reconsidered a cointegrated vector autoregression
Energy Economics, 2014Co-Authors: Marek Kolodzeij, Robert K KaufmannAbstract:Abstract We reconsider the conclusions about the importance of oil demand shocks and the unimportance of supply shocks reported by Kilian (2009). We investigate whether the proxy for worldwide real economic activity, dry bulk maritime freight costs, represents anything more than transportation costs by analyzing the relation between these costs and oil prices. The meaning of this variable is critical because transportation costs appear on both sides of the equations estimated by Kilian, directly as dry bulk maritime freight costs and as part of the measure for oil prices. We also investigate the effects of representing oil supply with an aggregate of OPEC and non-OPEC production because they likely use different criteria to chose output. Finally we investigate Kilian's use of the first difference of supply while the other variables in his model are represented as levels. The results suggest that OPEC and nonOPEC nations use different criteria to set output and that reductions (increases) in OPEC production raise (lower) oil prices. The elements of the cointegrating relations, their loadings, and impulse response functions suggest that the positive relation between dry bulk maritime freight costs and oil prices simply represents the effect of higher oil prices on transportation costs. Sensitivity analyses suggest that these differences are caused by including transportation costs in the measure of oil prices, aggregating OPEC and non-OPEC productions, and using a very long lag length to estimate the VAR. Together, these results suggest that conclusions about the importance of demand shocks and the unimportance of supply shocks are not robust to alternative specifications that are consistent with many empirical findings about the world oil market.
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the role of market fundamentals and speculation in recent price changes for crude oil
Energy Policy, 2011Co-Authors: Robert K KaufmannAbstract:I hypothesize that the price spike and collapse of 2007–2008 are driven by both changes in both market fundamentals and speculative pressures. Contrary to arguments for a demand shock, I hypothesize that prices rise sharply in 2007–2008 because ongoing growth in Chinese oil demand runs into a sudden and unexpected halt to a decade long increase in non-OPEC production. This caused a loss of OPEC spare capacity because increased demand for OPEC production runs ahead of increases in OPEC capacity. These changes are reinforced by speculative expectations. Although difficult to measure directly, I argue for the role of speculation based on the following: (1) a significant increase in private US crude oil inventories since 2004; (2) repeated and extended break-downs (starting in 2004) in the cointegrating relationship between spot and far month future prices that are inconsistent with the law of one price and arbitrage opportunities; and (3) statistical and predictive failures by an econometric model of oil prices that is based on market fundamentals. These changes are related to the behavior and impact of noise traders on asset prices to sketch mechanisms by which speculative expectations can affect crude oil prices.
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determinants of OPEC production implications for OPEC behavior
Energy Economics, 2008Co-Authors: Robert K Kaufmann, Andrew Bradford, Laura H Belanger, John P Mclaughlin, Yosuke MikiAbstract:We estimate models that identify the economic and organizational determinants of crude oil production by individual OPEC nations. To clarify the interpretation of econometric results, we model production with specifications that resolve the statistical ordering of variables and estimate models with techniques that can cope with stochastic trends in the time series. We also analyze the short-run dynamics for asymmetries that may carry important insights about OPEC behavior. Results indicate that Quotas are an important determinant of production and their effects generally are symmetric, which implies that OPEC is an organization that influences production and ultimately prices. Real prices generally have a positive effect on production and the size of this effect may depend on spare capacity, which implies that OPEC behaviors also embody competitive elements. Finally all nations other than Saudi Arabia show some form of production sharing behavior, which may imply that OPEC shares mismatches between the call for OPEC production and OPEC quotas.
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modelling the world oil market assessment of a quarterly econometric model
Energy Policy, 2007Co-Authors: Stephane Dees, Pavlos Karadeloglou, Robert K Kaufmann, Marcelo SánchezAbstract:Abstract This paper describes a structural econometric model of the world oil market that can be used to analyse oil market developments and risks. Oil demand depends on domestic economic activity and the real price of oil. Oil supply for non-OPEC producers, based on competitive behaviours, is constrained by geological and institutional conditions. Oil prices are determined by a “price rule” that includes market conditions and OPEC behaviour. Policy simulations indicate that oil demand and non-OPEC supply are rather inelastic to changes in price, while OPEC decisions about quota and capacity utilisation have a significant, immediate impact on oil prices.
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Does OPEC Matter? An Econometric Analysis of Oil Prices
The Energy Journal, 2004Co-Authors: Robert K Kaufmann, Stephane Dees, Pavlos Karadeloglou, Marcelo SánchezAbstract:We assess claims that OPEC's ability to influence real oil prices has diminished and that the relationship between real oil prices and OPEC production can be used to test competing hypotheses about OPEC behavior. An econometric analysis indicates that there is a statistically significant relationship among real oil prices, OPEC capacity utilization, OPEC quotas, the degree to which OPEC exceeds these production quotas, and OECD stocks of crude oil. These variables "Granger cause" real oil prices but real oil prices do not "Granger cause" these variables. These results imply that OPEC influences oil prices and that previous models cannot be used to test competing models for OPEC production behavior. The effect of OECD oil stocks on real oil prices indicates that there may be an important externality in private decisions regarding optimal crude oil stocks.
