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Gains from Cartelisation in the Oil Market

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Abstract

In this paper we ask whether OPEC still gains from cartelisation in the oil market despite low producer prices and a modest market share. We apply two intertemporal equilibrium models of the global oil market; one consisting of a cartel and a fringe, and one describing a hypothetical competitive market. Comparing the outcome of these models we conclude that there are positive cartelisation gains of about 18 per cent in the oil market. In comparison with what Pindyck (1978) found for the 1970s this may be considered as quite modest. Moreover, we study whether the cartelisation gains to OPEC are altered by different moves by non-OPEC producers or consumer countries. Generally, we find that the relative cartelisation gains are unchanged. One exception is exploration activities, where we find that a major increase in non-OPEC reserves could remove the cartelisation gains to OPEC completely. In this case, the OPEC-countries could find themselves better off without the cartel.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 181.

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Date of creation: Oct 1996
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Handle: RePEc:ssb:dispap:181

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Keywords: Cartelisation Gains; Petroleum Wealth; Exhaustible Resources.;

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References

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  1. Salih Gurcan Gulen, 1996. "Is OPEC a Cartel? Evidence from Cointegration and Causality Tests," Boston College Working Papers in Economics 318., Boston College Department of Economics.
  2. Alan S. Manne & Richard G. Richels, 1990. "CO2 Emission Limits: An Economic Cost Analysis for the USA," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 51-74.
  3. Rolf Golombek & Eystein Gjelsvik & Knut Einar Rosendahl, 1995. "Effects of Liberalizing the Natural Gas Markets in Western Europe," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 85-112.
  4. Griffin, James M, 1985. "OPEC Behavior: A Test of Alternative Hypotheses," American Economic Review, American Economic Association, vol. 75(5), pages 954-63, December.
  5. Pindyck, Robert S, 1978. "Gains to Producers from the Cartelization of Exhaustible Resources," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 238-51, May.
  6. Alan S. Manne & Thomas F. Rutherford, 1994. "International Trade in Oil, Gas and Carbon Emission Rights: An Intertemporal General Equilibrium Model," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 57-76.
  7. Elin Berg & Snorre Kverndokk & Knut Einar Rosendahl, 1996. "Market Power, International CO2 Taxation and Petroleum Wealth," Discussion Papers 170, Research Department of Statistics Norway.
  8. Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-93, October.
  9. Morris A. Adelman, 1993. "Modelling World Oil Supply," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-32.
  10. Rolf Golombek & Jan Braten, 1994. "Incomplete International Climate Agreements: Optimal Carbon Taxes, Market Failures and Welfare Effects," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 141-166.
  11. Manne, Alan & Mendelsohn, Robert & Richels, Richard, 1995. "MERGE : A model for evaluating regional and global effects of GHG reduction policies," Energy Policy, Elsevier, vol. 23(1), pages 17-34, January.
  12. Ellerman, A Denny, 1995. "The world price of coal," Energy Policy, Elsevier, vol. 23(6), pages 499-506, June.
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Citations

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Cited by:
  1. Barnett, Jon & Dessai, Suraje & Webber, Michael, 2004. "Will OPEC lose from the Kyoto Protocol?," Energy Policy, Elsevier, vol. 32(18), pages 2077-2088, December.
  2. Rehrl, Tobias & Friedrich, Rainer, 2006. "Modelling long-term oil price and extraction with a Hubbert approach: The LOPEX model," Energy Policy, Elsevier, vol. 34(15), pages 2413-2428, October.
  3. Lars Lindholt, 1999. "Beyond Kyoto: CO2 permit prices and the markets for fossil fuels," Discussion Papers 258, Research Department of Statistics Norway.
  4. Weiyu Gao & Peter Hartley & Robin Sickles, 2009. "Optimal dynamic production from a large oil field in Saudi Arabia," Empirical Economics, Springer, vol. 37(1), pages 153-184, September.
  5. Varshavsky , Leonid, 2009. "Modeling Dynamics of Oil Prices under Different Regimes of Oil Market Development," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 13(1), pages 70-88.
  6. Leighty, Wayne, 2008. "Modeling of Energy Production Decisions: An Alaska Oil Case Study," Institute of Transportation Studies, Working Paper Series qt8005v9q4, Institute of Transportation Studies, UC Davis.
  7. Waisman, Henri & Rozenberg, Julie & Hourcade, Jean Charles, 2013. "Monetary compensations in climate policy through the lens of a general equilibrium assessment: The case of oil-exporting countries," Energy Policy, Elsevier, vol. 63(C), pages 951-961.
  8. Elin Berg & Snorre Kverndokk & Knut Einar Rosendahl, 1999. "Optimal Oil Exploration under Climate Treaties," Discussion Papers 245, Research Department of Statistics Norway.
  9. Sverre Grepperud, 1997. "Soil Depletion Choices under Production and Price Uncertainty," Discussion Papers 186, Research Department of Statistics Norway.

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