Premium
The value of OPEC’s spare capacity to the oil market and global economy
Author(s) -
Almutairi Hossa,
Pierru Axel,
Smith James L.
Publication year - 2021
Publication title -
opec energy review
Language(s) - English
Resource type - Journals
eISSN - 1753-0237
pISSN - 1753-0229
DOI - 10.1111/opec.12199
Subject(s) - spare part , volatility (finance) , boom , economics , commodity , value (mathematics) , commodity market , crude oil , economy , monetary economics , market economy , financial economics , finance , operations management , environmental science , engineering , machine learning , environmental engineering , computer science , petroleum engineering
We investigate the extent to which OPEC has succeeded in its self‐stated mission of stabilising the oil market and the implications for the world’s economy. We discuss the modelling framework developed by Pierru, Smith and Zamrik (2018) and Pierru, Smith and Almutairi (2020) and update their analyses. Unstabilised monthly oil prices that would have prevailed in the absence of OPEC’s spare capacity policy are determined for the September 2001–June 2020 period. Overall, OPEC’s management of spare capacity has significantly decreased the monthly volatility of the oil price. Three subperiods (commodity boom, market‐share campaign, OPEC+) can, however, be distinguished in terms of the impact on price volatility. The annual value of OPEC’s spare capacity to the world’s economy is estimated to be 193.1 billion in 2019 US dollars.