Industry restructuring, OPEC response – and oil price formation
AbstractIncreased focus on shareholder returns, capital discipline and return on capital employed (RoACE) caused a slowdown in investment rates and production growth among international oil companies around the turn of the century. Focusing on supply side dynamics of the oil market, we explore a hypothesis that the restructuring in the international oil industry towards the end of the 1990s had long-lived effects on OPEC strategies – and on oil price formation. Based on a partial equilibrium model for the global oil market, we examine the effects of the industry restructuring on oil supply and oil prices, compared with a counterfactual reference scenario characterised by industrial stability and unchanged price ambitions within OPEC. A key result is that important factors behind the currently high oil price can be traced back to the industrial restructuring and to the Asian economic crisis. This suggests that temporary economic and financial shocks may have a long-term impact on oil price formation.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 511.
Date of creation: Jul 2007
Date of revision:
Oil market; investment behaviour; market power; equilibrium model;
Find related papers by JEL classification:
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-18 (All new papers)
- NEP-ENE-2007-08-18 (Energy Economics)
- NEP-IND-2007-08-18 (Industrial Organization)
- NEP-SEA-2007-08-18 (South East Asia)
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