OPEC claims to hold and use spare production capacity to stabilize the crude oil market. We study the impact of that buffer on the volatility of oil prices. After estimating the stochastic process that generates shocks to demand and supply, and assessing OPEC’s limited ability to accurately measure and offset those shocks, we find that OPEC’s use of spare capacity has reduced price volatility, perhaps by as much as half. We also apply the principle of revealed preference to infer the implicit loss function that rationalizes OPEC’s investment in spare capacity and compare it to other estimates of the cost of crude oil supply shortfalls. That comparison suggests that OPEC’s buffer capacity was in line with global macroeconomic needs.

Acting Vice President/ Program Director
In February 2023, Axel Pierru was assigned as Acting Vice President of Knowledge and Analysis for the Center. He received…
In February 2023, Axel Pierru was assigned as Acting Vice President of Knowledge and Analysis for the Center. He received his Ph.D. in economics from University Paris 1 Pantheon-Sorbonne (France). He also holds an HDR degree, which is a French accreditation to supervise research. In 2007, Dr. Pierru was appointed Chevalier dans l’Ordre des Palmes Académiques (knighthood award in the academic field) by the French Ministry for National Education. He is the recipient of the 2023 OPEC Award for the Best Energy Research Paper (issued by OPEC for the first time). In 2011 Dr. Pierru joined KAPSARC in Saudi Arabia, after spending 15 years at IFP Energies Nouvelles (France) where he led research, consulting and training projects and taught energy economics and finance to postgraduate students. Dr. Pierru has served in various leadership positions at KAPSARC, including as interim Vice President for Research. Since 2014 he has been a program director, and currently he leads the Energy Macro & Micro-economics Program. He undertakes applied research that combines methodological innovation with practical relevance for policymaking. His expertise covers energy economics, policy, finance, modeling, the oil market, and commodity-exporting economies. Dr. Pierru has a proven track record of methodological innovations with 50 journal papers to his name. He has been a key contributor to the development of novel lines of research, such as the role of OPEC in stabilizing the oil market, the economic modeling of price controls, or the evaluation of investment projects by international oil companies facing various tax systems. He also coauthored with Denis Babusiaux the book Corporate Investment Decisions and Economic Analysis: Exercises and Case Studies (2005), which is the fruit of years of teaching, consulting and research, and contains numerous examples from the energysector.
Expertise
- Energy modelling
- Energy economics
- Energy policy
- Oil pricing and finance
Publications See all Axel Pierru’s publications

Assessing Climate Mitigation Benefits of Public Support to CCS-EOR: An Economic Analysis
OPEC claims to hold and use spare production capacity to stabilize the crude oil market.…
8th June 2023
Hard-linking a Top-down Economic Model with a Bottom-up Energy System for an Oil-exporting Country with Price Controls
OPEC claims to hold and use spare production capacity to stabilize the crude oil market.…
7th January 2023