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Is OPEC a Cartel? Evidence from Cointegration and Causality Tests

Abstract:
Were the energy shocks of the 1970s engineered by an effective cartel acting to share the market by controlling output and influencing oil prices? If OPEC was an effective cartel sharing the market among its members, there would be a long run relationship between each member's production and total OPEC output. One would also expect OPECs production to significantly affect the price of oil. These implications of cartel behavior are tested via cointegration and causality tests. The likely effects of regime changes are dealt with using techniques developed by Perron (1989). There is evidence of output coordination among members of the organization, especially in the output rationing era (1982-1993). This is also the only period in which the causality from OPEC production to the price of oil is statistically significant.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation; Energy Security and Geopolitics – International Energy Organizations; Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
O19 - International Linkages to Development; Role of International Organizations
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination

Keywords: OPEC, oil production, oil market, cartel, cointegration, oil price

DOI: 10.5547/ISSN0195-6574-EJ-Vol17-No2-3


Published in Volume17, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.