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Does OPEC Matter? An Econometric Analysis of Oil Prices

We assess claims that OPEC's ability to influence real oil prices has diminished and that the relationship between real oil prices and OPEC production can be used to test competing hypotheses about OPEC behavior. An econometric analysis indicates that there is a statistically significant relationship among real oil prices, OPEC capacity utilization, OPEC quotas, the degree to which OPEC exceeds these production quotas, and OECD stocks of crude oil. These variables "Granger cause" real oil prices but real oil prices do not "Granger cause" these variables. These results imply that OPEC influences oil prices and that previous models cannot be used to test competing models for OPEC production behavior. The effect of OECD oil stocks on real oil prices indicates that there may be an important externality in private decisions regarding optimal crude oil stocks.

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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

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

Keywords: OPEC. Oil prices, cointegration, quotas, market power

DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No4-4

Published in Volume 25, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.