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An econometric analysis of the Saudi Arabia's crude oil strategy

Athanasios Dagoumas, Theodosios Perifanis and Michael Polemis ()

Resources Policy, 2018, vol. 59, issue C, 265-273

Abstract: This paper provides an econometric analysis of Saudi Arabia's crude oil strategy, as related to market fundamentals and macro-economic factors. Specifically, we develop three alternative econometric models over the period 1980–2017. The empirical findings provide sufficient evidence on the drivers of Saudi Arabia's crude oil production strategy. The results show that the kingdom of Saudi Arabia has a long-term supply sharing strategy, resilient to short-run price fluctuations. Saudi Arabia's strategy, aims at meeting about half of the world demand increase, both in the long and the short run, leaving limited space to the rest of the world producers. Saudi Arabia's production strategy is slightly affected by the OECD stocks, only in the short-run, and it is rather competitive. We argue that its production is inelastic to world crude oil demand fluctuations. Saudi Arabia's production lends support to the trade-off theory, since the kingdom produces more crude oil to defend its total petroleum exports. Lastly, we argue that Saudi Arabia adjusts its production strategy away from the optimal production level, in order to meet wider policy goals, such as the preservation of its petroleum exports and its market share in the global crude oil market.

Keywords: OPECOrganization of the Petroleum Exporting Countries; ECTError Correction Term; GDPGross Domestic Product; EIAEnergy Information Agency; OECDOrganization for Economic Cooperation and Development; ARMAAutoRegressive Moving Average; ARAutoRegressive; MAMoving Average; CLSConditional Least Squares; Competition; Crude oil; Error correction model; Strategy; Saudi Arabia; OPEC (search for similar items in EconPapers)
JEL-codes: L11 L13 O13 Q43 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jrpoli:v:59:y:2018:i:c:p:265-273