Analysis of Saudi Arabia's behavior within OPEC and the world oil market
We analyze oil export behavior by Saudi Arabia and the Rest of OPEC since 1973. In the literature there has been a wide range of estimates of their correlation: from positive, to zero, to negative. We find that the correlation has varied over time, from moderately high (0.7) in normal periods, to negative during each of five interruptions; the average correlation has been 0.19. Saudi Arabia's oil market behavior depends upon circumstances, but its primary goal is the stability of OPEC and the world oil market. It will coordinate export reductions with the Rest of OPEC when faced with declining demand, but it will increase exports when faced with interruptions elsewhere in OPEC. Allowing for such differences provides evidence of intelligent, context-dependent consistency. But ignoring context – by wrongly assuming the same Saudi response in Normal periods and Interruptions – can lead to a conclusion of Saudi “inconsistency” because the difference in the responses has been obscured.
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