Will disruptions in OPEC oil supply have permanent impact on the global oil market?

Boqiang Lin (), Oluwasola E. Omoju and Jennifer U. Okonkwo

Renewable and Sustainable Energy Reviews, 2015, vol. 52, issue C, 1312-1321

Abstract: OPEC has long been a major stakeholder and strong player in the global energy market, especially in the petroleum sub-sector. In recent time, however, there have been questions over the influence of OPEC in the sub-sector due to changing petroleum production landscape specifically as a result of the discovery of unconventional energy resources in North America and emergence of non-OPEC petroleum producing and exporting countries. This development could have significant effect on the global energy market and the macro-economy of OPEC member countries. The stationarity or otherwise of OPEC oil production/supply has important implications for determining whether fluctuations in OPEC market supply has temporary or permanent effect. Using the Zivot–Andrews structural break stationarity test and production data of OPEC member countries from 1980 to 2011, this paper investigates whether fluctuations in OPEC market supply has temporary or permanent effect. The empirical analysis shows that for only 5 OPEC members–Nigeria, Saudi Arabia, Ecuador, Kuwait and UAE—is the hypothesis of unit root rejected. This implies that for the five (5) OPEC members, the effects of shocks to oil production are not permanent and future pattern of oil production can be predicted following past trend. The practical implication of this finding is that OPEC production quota strategy may not have long-term impact on the global oil market. Thus, the cartel needs to improve oil production policy coordination among members and ensure strict adherence to production quota while also stressing the need for diversification in member countries.

Keywords: OPEC; Oil supply; Shocks; Production quota; Global oil market (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1016/j.rser.2015.07.196

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