OPEC’s Pursuit of Market Stability

  • Focus Area -
  • Type KAPSARC journal article
  • Date 9 June 2020
Print

Abstract

We investigate attempts by the Organization of Petroleum Exporting Countries (OPEC) to stabilize the price of oil during the past fifty years. We first develop a novel decomposition of shifts in global demand and non-OPEC supply. This decomposition provides a fresh perspective on the debate over the relative importance of demand versus supply factors as determinants of previous price movements. When factoring in OPEC’s production, the analysis suggests market stabilization efforts by OPEC. Using more detailed monthly data available only since 2001, we extend and refine Pierru, Smith, and Zamrik’s (2018) analysis of OPEC’s management of spare capacity to offset shocks to demand and supply. Although OPEC’s attempt to identify and offset shocks has not been perfect, we nevertheless conclude that, overall, OPEC’s use of spare capacity has achieved a significant reduction in the volatility of the price of oil. This has been particularly true during the recent OPEC+ period. We also provide an estimate of welfare gains to the global economy that result from OPEC’s effort to reduce price volatility and show how these gains have been distributed geographically.

https://www.iaee.org/en/publications/eeeparticle.aspx?id=328&id=328

IAEE

Authors

Axel Pierru

Axel Pierru

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

James L. Smith

James L. Smith

Hossa Almutairi

Hossa Almutairi

Research Fellow Hossa is a research fellow at KAPSARC. She is also currently the Think20’s (T20’s) Sherpa and is leading T20 Saudi… Hossa is a research fellow at KAPSARC. She is also currently the Think20's (T20's) Sherpa and is leading T20 Saudi Arabia's secretariat. She is also the lead co-chair of T20 Saudi Arabia's task force "sustainable energy, water and food systems." Before joining KAPSARC, Hossa was a faculty member at the University of Wilfrid Laurier, Canada. Her research interests include developing energy and economic models to study the impact of energy and environmental policies on economies, sustainable development and wealth accounting. Her work aims to provide policymakers and practitioners with decision support tools that can help identify the challenges, opportunities, and solutions associated with moving toward sustainable energy and sustainable business practices. Her work has been published in many peer-reviewed journals. She has a Ph.D. and a master's degree in applied operations research from the University of Waterloo, Canada, and a bachelor's degree in business administration from King Abdulaziz University, Saudi Arabia.

Expertise

  • Developing energy and economic models
  • Analyzing the effects of various policies on an economy
  • Applications of OR to climate change control policies
  • Green supply chain management
  • Large-scale optimization
  • Convex relaxation and decomposition techniques and big data analytics in supply chains.

Publications See all Hossa Almutairi’s publications

Share this Publication

Stay informed

 I'm interested in

Select the updates you'd like to receive from us

About

A bit about you