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An econometric model to assess the Saudi Arabia crude oil strategy

Athanasios Dagoumas, Theodosios Perifanis and Michael Polemis ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper aims at disentangling Saudi Arabia’s crude oil strategy, taking into account critical factors such as oil stock, crude oil price, world demand conditions and macro-economic factors. Our study estimates three Error Correction Models (ECMs), using data spanning the period 1971-2015. The empirical findings provide sufficient evidence on the way Saudi Arabia’s crude oil production strategy affects crude oil market. Specifically, when world crude oil demand increases, Saudi Arabia engages into exploitative practices since it tries to impose higher prices leaving room for the increased demand to the rest of the OPEC countries (market sharing). Moreover, we argue that Saudi Arabia’s strategy is in alliance with the trade-off theory of producing more crude oil to establish its market share. However, the country does not intent to fully cover all the increased demand and does not over-react to short-run demand fluctuations since such a strategy would push crude oil prices down.

Keywords: Crude oil; Error Correction Model; Energy; OPEC; Saudi Arabia (search for similar items in EconPapers)
JEL-codes: O13 O53 Q41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ara and nep-ene
Date: 2017-12-18
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