An Analysis of OPEC’s Strategic Actions, US Shale Growth and the 2014 Oil Price Crash
IMF Working Papers, July 6, 2016
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- An Analysis of OPEC’s Strategic Actions, US Shale Growth and the 2014 Oil Price Crash
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Bibliographic details
- Authors: Alberto Behar, Robert A Ritz
- Published: July 6, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498351638.001
Summary and key findings
- In November 2014, OPEC announced a new strategy geared towards improving its market share; oil-market analysts interpreted this as an attempt to squeeze higher-cost producers including US shale oil out of the market.
- Over the next year, crude oil prices crashed, with large repercussions for the global economy.
- The paper presents a simple equilibrium model that explains the fundamental market factors that can rationalize such a "regime switch" by OPEC. These include:
- (i) the growth of US shale oil production;
- (ii) the slowdown of global oil demand;
- (iii) reduced cohesiveness of the OPEC cartel;
- (iv) production ramp-ups in other non-OPEC countries.
- Qualitative predictions from the model are broadly consistent with oil market developments during 2014-15.
- The model is calibrated to oil market data; it predicts accommodation up to 2014 and a market-share strategy thereafter, and explains large oil-price swings as well as realistically high levels of OPEC output.
Model, calibration, and empirical interpretation
- The paper uses a simple equilibrium framework calibrated to oil market data.
- Calibration results:
- Predicts accommodation by OPEC up to 2014.
- Predicts a market-share strategy by OPEC after 2014.
- Explains large oil-price swings observed in 2014-15.
- Explains realistically high levels of OPEC output during the episode.
Main drivers identified
- Growth of US shale oil production.
- Slowdown of global oil demand.
- Reduced cohesiveness of the OPEC cartel.
- Production ramp-ups in other non-OPEC countries.
Publication and metadata
- Authors: Alberto Behar, Robert A Ritz
- Date: July 6, 2016
- Series: IMF Working Papers
- Working Paper No.: 2016/131
- Volume: 2016
- Issue: 131
- Pages: 36
- DOI: https://doi.org/10.5089/9781498351638.001
- ISBN: 9781498351638
- ISSN: 1018-5941
Subjects and keywords
- Subject: Commodities, Demand elasticity, Economic theory, Expenditure, Financial institutions, Futures, National accounts, Oil, Oil consumption, Oil prices, Oil production, Prices, Production, Public expenditure review
- Keywords: calibration approach, Crude oil, Demand elasticity, Futures, Global, limit pricing, market power, market share, Oil, Oil consumption, oil price crash, Oil prices, Oil production, oil supply and demand growth, OPEC, OPEC capacity, OPEC producer, OPEC statistics, OPEC supply, price crash, production capacity, Public expenditure review, regime switch, shale growth, shale oil, strategic action, WP
IMF Working Paper by Alberto Behar and Robert A Ritz, July 6, 2016. Working Paper No. 2016/131. DOI: https://doi.org/10.5089/9781498351638.001