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Simulation of World Oil Market Shocks: A Markov Analysis of OPEC and Consumer Behavior

Abstract:
One major determinant of crude oil price will be the question of whether or not OPEC can resolve its internal conflicts and act effectively as a coalition in restricting the quantities it will supply. For the economist, this question stands at the center of the energy problem; unfortunately, economic analysis has little that is definite to say about the question, and consequently little to say about how OPEC determines its posted price policies and the quantities of oil to be placed on the market. Economic analysis has also failed to provide any definite explanation of the fact that individual OPEC members have not been prone to seek net revenue increases through additional sales, even during periods of declining sales or during oil gluts such as the 1975 recession in OECD countries.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets

Keywords: World oil market, price shocks, Markov analysis, OPEC, Consumer behavior

DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No2-3


Published in Volume 1, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.