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.
Acting Vice President/ Program Director Axel Pierru received his Ph.D. in economics from University Paris 1 Pantheon-Sorbonne (France). He also holds an HDR degree, which… Axel Pierru 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. 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 is also Acting Vice President, Knowledge & Analysis. He undertakes applied research that combines methodological innovation with practical relevance for policymaking. His expertise covers oil market and pricing, energy economics, policy, finance and modeling, and oil-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 oil and gas sector.
Expertise
- Energy modelling
- Energy economics
- Energy policy
- Oil pricing and finance
Publications See all Axel Pierru’s publications
Hard-linking a Top-down Economic Model with a Bottom-up Energy System for an Oil-exporting Country with Price Controls
We investigate attempts by the Organization of Petroleum Exporting Countries (OPEC) to stabilize the price…
7th January 2023Oil Market Stabilization: The Performance of OPEC and Its Allies
We investigate attempts by the Organization of Petroleum Exporting Countries (OPEC) to stabilize the price…
15th November 2022
