The Influence of Opec+ on Oil Prices: A Quantitative Assessment

30 Pages Posted: 14 Sep 2020

See all articles by Dominic Quint

Dominic Quint

Deutsche Bundesbank

Fabrizio Venditti

European Central Bank (ECB)

Date Written: September, 2020

Abstract

Between January 2017 and March 2020 a coalition of oil producers led by OPEC and Russia (known as OPEC+) cut oil production in an attempt to raise the price of crude oil. In March 2020 the corona virus shock led to a collapse of this coalition, as members did not agree on keeping the oil market tight in the face of a large negative demand shock. Yet, was OPEC+ actually effective in sustaining the price of oil? Between 2017 and early 2020 when the OPEC+ strategy was in place, oil inventories fell substantially and the price of oil reached a peak of around 80 USD per barrel, from a minimum of 30 USD in 2016. This suggests that the OPEC+ strategy had a significant impact on the global oil market. Yet, to what extent did crude prices actually reflect OPEC+ production cuts rather than other factors, like swings in demand for oil? How would the price of oil have evolved had OPEC+ not cut supply? This paper provides an answer to these questions through a counterfactual analysis based on two structural models of the global oil market. We find the impact of OPEC+ on the market was overall quite limited, owing to significant deviations from the assigned quotas. On average, without the OPEC+ cuts, the price of oil would have been 6 percent (4 USD) lower.

Keywords: oil demand, oil price, oil supply, OPEC, shale oil

JEL Classification: Q43, C53

Suggested Citation

Quint, Dominic and Venditti, Fabrizio, The Influence of Opec+ on Oil Prices: A Quantitative Assessment (September, 2020). ECB Working Paper No. 20202467, Available at SSRN: https://ssrn.com/abstract=3692343 or http://dx.doi.org/10.2139/ssrn.3692343

Dominic Quint (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Fabrizio Venditti

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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