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Gains from Cartelisation in the Oil Market

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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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  • Elin Berg & Snorre Kverndokk & Knut Einar Rosendahl, 1996. "Gains from Cartelisation in the Oil Market," Discussion Papers 181, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:181
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    1. Snorre Kverndokk & Lars Lindholt & Knut Rosendahl, 2000. "Stabilization of CO 2 concentrations: mitigation scenarios using the Petro model," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 3(2), pages 195-224, June.
    2. Hans-Peter Weikard, 2016. "Phosphorus recycling and food security in the long run: a conceptual modelling approach," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 8(2), pages 405-414, April.
    3. 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.
    4. Lars Lindholt, 1999. "Beyond Kyoto: CO2 permit prices and the markets for fossil fuels," Discussion Papers 258, Statistics Norway, Research Department.
    5. Elin Berg & Snorre Kverndokk & Knut Einar Rosendahl, 1999. "Optimal Oil Exploration under Climate Treaties," Discussion Papers 245, Statistics Norway, Research Department.
    6. Leighty, Wayne W. & Lin, C.Y. Cynthia, 2008. "Tax policy can change the production path: an empirical model of optimal oil extraction in Alaska," Working Papers 225894, University of California, Davis, Department of Agricultural and Resource Economics.
    7. Berthod, Mathias & Benchekroun, Hassan, 2019. "On agreements in a nonrenewable resource market: A cooperative differential game approach," Journal of Economic Dynamics and Control, Elsevier, vol. 98(C), pages 23-39.
    8. 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.
    9. Varshavsky , Leonid, 2009. "Modeling Dynamics of Oil Prices under Different Regimes of Oil Market Development," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 13(1), pages 70-88.
    10. Barnett, Jon & Dessai, Suraje & Webber, Michael, 2004. "Will OPEC lose from the Kyoto Protocol?," Energy Policy, Elsevier, vol. 32(18), pages 2077-2088, December.
    11. 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.
    12. 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.
    13. Sverre Grepperud, 1997. "Soil Depletion Choices under Production and Price Uncertainty," Discussion Papers 186, Statistics Norway, Research Department.
    14. Horn, Manfred, 2004. "OPEC's optimal crude oil price," Energy Policy, Elsevier, vol. 32(2), pages 269-280, January.
    15. Okullo, Samuel J. & Reynès, Frédéric, 2016. "Imperfect cartelization in OPEC," Energy Economics, Elsevier, vol. 60(C), pages 333-344.
    16. Berg, Elin & Kverndokk, Snorre & Rosendahl, Knut Einar, 2002. "Oil Exploration under Climate Treaties," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 493-516, November.

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    More about this item

    Keywords

    Cartelisation Gains; Petroleum Wealth; Exhaustible Resources.;
    All these keywords.

    JEL classification:

    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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