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OPEC and Venezuelan oil production: Evidence against a cartel hypothesis

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  • Reynolds, Douglas B.
  • Pippenger, Michael K.

Abstract

This study revisits the OPEC cartel hypothesis using a case study. A test is conducted to see if Venezuela has its production Granger cause its OPEC quota or whether the OPEC quota for Venezuela Granger causes Venezuelan production. The results show both occur at different times. In the short run, OPEC's oil production quota for Venezuela Granger causes Venezuelan production. However, shortly after cuts, Venezuela cheats on agreements, suggesting a tit-for-tat oligopoly game, which is not anti-competitive. In the long run, we show that Venezuelan oil production Granger causes OPEC's quota for Venezuela, but not vice versa. Having Venezuelan oil production Granger cause OPEC quotas for Venezuela in the long run suggests OPEC does not coordinate outputs as much as it reacts to them. The evidence suggests Venezuela is not a part of an OPEC anti-competitive syndicate even though we show that Venezuelan oil production is low. An alternative explanation for why Venezuela and possibly other OPEC members have low oil production outputs is that institutions and risk aversion, not cartel participation, is the cause. A vector error correction model shows that there is no tendency for Venezuelan oil production to converge to OPEC's quota for Venezuela.

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  • Reynolds, Douglas B. & Pippenger, Michael K., 2010. "OPEC and Venezuelan oil production: Evidence against a cartel hypothesis," Energy Policy, Elsevier, vol. 38(10), pages 6045-6055, October.
    • Handle: RePEc:eee:enepol:v:38:y:2010:i:10:p:6045-6055
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    2. Sena, Marcelo Fonseca Monteiro de & Rosa, Luiz Pinguelli & Szklo, Alexandre, 2013. "Will Venezuelan extra-heavy oil be a significant source of petroleum in the next decades?," Energy Policy, Elsevier, vol. 61(C), pages 51-59.
    3. Fuhai Hong & Larry Karp, 2014. "International Environmental Agreements with Endogenous or Exogenous Risk," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(3), pages 365-394.
    4. Reynolds, Douglas B. & Baek, Jungho, 2012. "Much ado about Hotelling: Beware the ides of Hubbert," Energy Economics, Elsevier, vol. 34(1), pages 162-170.
    5. Andrea Bonilla Bolanos, 2014. "External Vulnerabilities And Economic Integration: Is The Union Of South American Nations A Promising Project?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 39(2), pages 97-131, June.
    6. Reynolds, Douglas B., 2014. "World oil production trend: Comparing Hubbert multi-cycle curves," Ecological Economics, Elsevier, vol. 98(C), pages 62-71.
    7. Colgan, Jeff D., 2014. "The Emperor Has No Clothes: The Limits of OPEC in the Global Oil Market," International Organization, Cambridge University Press, vol. 68(3), pages 599-632, July.
    8. Ansari, Dawud, 2017. "OPEC, Saudi Arabia, and the shale revolution: Insights from equilibrium modelling and oil politics," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 111, pages 166-178.
    9. Toft, Peter & Duero, Arash, 2011. "Reliable in the long run? Petroleum policy and long-term oil supplier reliability," Energy Policy, Elsevier, vol. 39(10), pages 6583-6594, October.
    10. Ghoddusi, Hamed & Nili, Masoud & Rastad, Mahdi, 2017. "On quota violations of OPEC members," Energy Economics, Elsevier, vol. 68(C), pages 410-422.
    11. Reynolds, Douglas B., 2013. "Uncertainty in exhaustible natural resource economics: The irreversible sunk costs of Hotelling," Resources Policy, Elsevier, vol. 38(4), pages 532-541.
    12. Chavez-Rodriguez, Mauro F. & Szklo, Alexandre & de Lucena, Andre Frossard Pereira, 2015. "Analysis of past and future oil production in Peru under a Hubbert approach," Energy Policy, Elsevier, vol. 77(C), pages 140-151.
    13. Wachtmeister, Henrik & Henke, Petter & Höök, Mikael, 2018. "Oil projections in retrospect: Revisions, accuracy and current uncertainty," Applied Energy, Elsevier, vol. 220(C), pages 138-153.
    14. C.R. BISHNOI & Apeksha SHARMA, 2022. "An econometric approach to analyse the perceived cartel behaviour of OPEC," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(632), A), pages 27-42, Autumn.

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