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An Analysis of OPEC’s Strategic Actions, US Shale Growth and the 2014 Oil Price Crash
Author: Mr. Alberto Behar and Robert A Ritz
Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 131
Language:
English
Publication Date:
06 Jul 2016
DOI:
https://doi.org/10.5089/9781498351638.001
ISBN:
9781498351638
ISSN:
1018-5941
Pages:
36
Keywords:
WP; market share; OPEC supply; production capacity; market power; Crude oil; OPEC; price crash; shale oil; limit pricing; regime switch; OPEC producer; OPEC capacity; OPEC statistics; Oil prices; Oil; Demand elasticity; Futures; Public expenditure review; Global; oil price crash; shale growth; calibration approach; oil supply and demand growth; strategic action; Oil consumption; Oil production
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund