An Analysis of OPEC’s Strategic Actions, US Shale Growth and the 2014 Oil Price Crash
- ISBN-10
- 1475534116
- ISBN-13
- 9781475534115
- Category
- Business & Economics
- Pages
- 36
- Language
- English
- Published
- 2016-09-07
- Publisher
- International Monetary Fund
- Authors
- Mr.Alberto Behar, Robert A Ritz
Description
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. We present 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. We show that these qualitative predictions 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.
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Other editions
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- 2016-07-06
- 36 pages
- Paperback
- International Monetary Fund
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