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An Analysis of OPEC’s Strategic Actions, US Shale Growth and the 2014 Oil Price Crash

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  • Mr. Alberto Behar
  • Robert A Ritz

Abstract

In November 2014, OPEC announced a new strategy geared towards improving its market share. Oil-market analysts interpreted this as an attempt to squeeze higher-cost producers including US shale oil out of the market. Over the next year, crude oil prices crashed, with large repercussions for the global economy. We present a simple equilibrium model that explains the fundamental market factors that can rationalize such a "regime switch" by OPEC. These include: (i) the growth of US shale oil production; (ii) the slowdown of global oil demand; (iii) reduced cohesiveness of the OPEC cartel; (iv) production ramp-ups in other non-OPEC countries. We show that these qualitative predictions are broadly consistent with oil market developments during 2014-15. The model is calibrated to oil market data; it predicts accommodation up to 2014 and a market-share strategy thereafter, and explains large oil-price swings as well as realistically high levels of OPEC output.

Suggested Citation

  • Mr. Alberto Behar & Robert A Ritz, 2016. "An Analysis of OPEC’s Strategic Actions, US Shale Growth and the 2014 Oil Price Crash," IMF Working Papers 2016/131, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2016/131
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    2. Foroni, Claudia & Stracca, Livio, 2019. "Much ado about nothing? The shale oil revolution and the global supply curve," Working Paper Series 2309, European Central Bank.
    3. Jong-Hyun Kim & Yong-Gil Lee, 2017. "Analyzing the Learning Path of US Shale Players by Using the Learning Curve Method," Sustainability, MDPI, vol. 9(12), pages 1-8, December.
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    6. Jong-Hyun Kim & Yong-Gil Lee, 2018. "Learning Curve, Change in Industrial Environment, and Dynamics of Production Activities in Unconventional Energy Resources," Sustainability, MDPI, vol. 10(9), pages 1-11, September.
    7. Gil-Alana, Luis A. & Dadgar, Yadollah & Nazari, Rouhollah, 2020. "An analysis of the OPEC and non-OPEC position in the World Oil Market: A fractionally integrated approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 541(C).
    8. David R. Mares, 2022. "Understanding Cartel Viability: Implications for a Latin American Lithium Suppliers Agreement," Energies, MDPI, vol. 15(15), pages 1-26, July.
    9. Claudia Foroni & Livio Stracca, 2023. "The shale oil revolution and the global oil supply curve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(3), pages 370-387, April.
    10. Bader Sabtan & Marc D. Kilgour & Keith W. Hipel, 2019. "Assessing the effectiveness of economic sanctions," EURO Journal on Decision Processes, Springer;EURO - The Association of European Operational Research Societies, vol. 7(1), pages 69-82, May.
    11. Yao Axel Ehouman, 2021. "Dependence structure between oil price volatility and sovereign credit risk of oil exporters : Evidence using a Copula Approach," Post-Print hal-03348410, HAL.
    12. Yao Axel Ehouman, 2020. "Dependence structure between oil price volatility and sovereign credit risk of oil exporters: Evidence using a Copula Approach," EconomiX Working Papers 2020-31, University of Paris Nanterre, EconomiX.
    13. Pål Boug & Ådne Cappelen, 2022. "Did OPEC change its behaviour after the November 2014 meeting?," Empirical Economics, Springer, vol. 62(5), pages 2285-2305, May.

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