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Financial market pressure, tacit collusion and oil price formation

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  • Aune, Finn Roar
  • Mohn, Klaus
  • Osmundsen, Petter
  • Rosendahl, Knut Einar

Abstract

We explore a hypothesis that a change in investment behaviour among international oil companies (IOC) towards the end of the 1990s had long-lived effects on OPEC strategies, and on oil price formation. Coordinated investment constraints were imposed on the IOCs through financial market pressures for improved short-term profitability in the wake of the Asian economic crisis. A partial equilibrium model for the global oil market is applied to compare the effects of these tacitly collusive capital constraints on oil supply with an alternative characterised by industrial stability. Our results suggest that even temporary economic and financial shocks may have a long-term impact on oil price formation.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 32 (2010)
Issue (Month): 2 (March)
Pages: 389-398

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Handle: RePEc:eee:eneeco:v:32:y:2010:i:2:p:389-398

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Web page: http://www.elsevier.com/locate/eneco

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Keywords: Investment behaviour Market power Oil market Tacit collusion;

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Cited by:
  1. Petter Osmundsen & Knut Einar Rosendahl & Terje Skjerpen, 2012. "Understanding rig rates," Discussion Papers 696, Research Department of Statistics Norway.
  2. Huppmann, Daniel, 2013. "Endogenous shifts in OPEC market power - A Stackelberg oligopoly with fringe," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79758, Verein für Socialpolitik / German Economic Association.

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