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Cooperate or Compete? Insights from Simulating a Global Oil Market with No Residual Supplier

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Listed:
  • Bertrand Rioux
  • Abdullah Al Jarboua
  • Fatih Karanfil
  • Axel Pierru
  • Shahd Al Rashed
  • Colin Ward

Abstract

Structural changes in the oil market, such as the rise of tight oil, are impacting conventional market dynamics and incentives for producers to cooperate. What if OPEC stopped organizing residual production collectively? We develop an equilibrium model to simulate a competitive world oil market from 2020 to 2030.It includes detailed conventional and unconventional oil supplies and financial investment constraints. Our competitive market scenarios indicate that oil prices first decline and tend to recover to reference residual supplier scenario levels by 2030. In a competitive oil market, a reduction in the financial resources made available to the global upstream oil sector leads to increased revenues for low-cost producers such as Saudi Arabia. Compared to the competitive scenario, Saudi Arabia does not benefit from acting alone as a residual supplier, but, under some assumptions, it benefits from being part of a larger group that works collectively as a residual supplier.

Suggested Citation

  • Bertrand Rioux & Abdullah Al Jarboua & Fatih Karanfil & Axel Pierru & Shahd Al Rashed & Colin Ward, 2022. "Cooperate or Compete? Insights from Simulating a Global Oil Market with No Residual Supplier," The Energy Journal, , vol. 43(2), pages 239-261, March.
    • Handle: RePEc:sae:enejou:v:43:y:2022:i:2:p:239-261
    DOI: 10.5547/01956574.43.2.brio
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    References listed on IDEAS

    as
    1. Golombek, Rolf & Irarrazabal, Alfonso A. & Ma, Lin, 2018. "OPEC's market power: An empirical dominant firm model for the oil market," Energy Economics, Elsevier, vol. 70(C), pages 98-115.
    2. Brown, Jason P. & Maniloff, Peter & Manning, Dale T., 2020. "Spatially variable taxation and resource extraction: The impact of state oil taxes on drilling in the US," Journal of Environmental Economics and Management, Elsevier, vol. 103(C).
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    More about this item

    Keywords

    Competitive Oil Market; Residual Supplier; Tight Oil; OPEC; Saudi Arabia;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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