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Title: Recent developments within OPEC: economic perspective

Abstract

The main purpose of this paper is to examine the behavior of the OPEC members to determine the reasons behind their conflicts, examining the characteristics of the different members. (These characteristics are: income per capita, expected oil reserve life, absorptive capacity, balance of payments on current accounts, and capacity utilization rate.) Based on these characteristics, subgroupings of OPEC are identified (two sub-groups are formed, the saver group and the spender group). Furthermore, it is established that the saver group has the ability to influence the oil market by the virtue of its special characteristics. Finally, using a dominant firm model of resource allocation over time with a backstop resource (which is taken to be shale oil) in conjunction with the characteristics of the two groups we give economic content to the conflict over the price of oil. It is found that the special characteristics of the saver group combined with its market power result in a pricing policy which is completely different from the pricing policy preferred by the spender group. Therefore, it is concluded that there are more fundamental reasons behind the conflicts over oil price within OPEC than those brought about by cartelization (i.e., incentives to cheat).

Authors:
Publication Date:
OSTI Identifier:
6037762
Resource Type:
Thesis/Dissertation
Resource Relation:
Other Information: Thesis (Ph. D.)
Country of Publication:
United States
Language:
English
Subject:
02 PETROLEUM; 29 ENERGY PLANNING, POLICY AND ECONOMY; OPEC; ECONOMIC ANALYSIS; ECONOMIC POLICY; PETROLEUM; COMPARATIVE EVALUATIONS; ECONOMETRICS; MARKET; ECONOMICS; ENERGY SOURCES; FOSSIL FUELS; FUELS; GOVERNMENT POLICIES; INTERNATIONAL ORGANIZATIONS; OIL-EXPORTING COUNTRIES 020700* -- Petroleum-- Economics, Industrial, & Business Aspects; 294002 -- Energy Planning & Policy-- Petroleum; 290200 -- Energy Planning & Policy-- Economics & Sociology

Citation Formats

Mohammad, Y.H. Recent developments within OPEC: economic perspective. United States: N. p., 1983. Web.
Mohammad, Y.H. Recent developments within OPEC: economic perspective. United States.
Mohammad, Y.H. 1983. "Recent developments within OPEC: economic perspective". United States. doi:.
@article{osti_6037762,
title = {Recent developments within OPEC: economic perspective},
author = {Mohammad, Y.H.},
abstractNote = {The main purpose of this paper is to examine the behavior of the OPEC members to determine the reasons behind their conflicts, examining the characteristics of the different members. (These characteristics are: income per capita, expected oil reserve life, absorptive capacity, balance of payments on current accounts, and capacity utilization rate.) Based on these characteristics, subgroupings of OPEC are identified (two sub-groups are formed, the saver group and the spender group). Furthermore, it is established that the saver group has the ability to influence the oil market by the virtue of its special characteristics. Finally, using a dominant firm model of resource allocation over time with a backstop resource (which is taken to be shale oil) in conjunction with the characteristics of the two groups we give economic content to the conflict over the price of oil. It is found that the special characteristics of the saver group combined with its market power result in a pricing policy which is completely different from the pricing policy preferred by the spender group. Therefore, it is concluded that there are more fundamental reasons behind the conflicts over oil price within OPEC than those brought about by cartelization (i.e., incentives to cheat).},
doi = {},
journal = {},
number = ,
volume = ,
place = {United States},
year = 1983,
month = 1
}

Thesis/Dissertation:
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  • Economists observing the differences between OPEC members have tried to explain the reasons behind the divergence in desired price level using several approaches. The author uses cluster analysis to put OPEC members into homogeneous groups. He then uses the classification, along with an appropriate model of resource allocation over time with a backstop resource, to explain the behavior of each country or group of countries. In maximizing the present value of its resources, Kuwait receives some emphasis because its unique behavior was not satisfactorily explained in earlier studies. The author concludes that the fringe will try to get the highestmore » possible price during each period, while the dominant group has to set its price to ensure the chosen price does not deviate from the desired but unknown price path. 4 figures, 3 tables.« less
  • This paper uses a macro economic model of oil exporting developing nations (OPEC) in conjunction with a social welfare function approach (optimal control) to derive an optimum level of oil production. The macro model assumes the economy produces only three goods (oil, imported goods, and nontraded goods), and the foreign exchange rate if fixed. There are twelve endogenous and nine exogenous variables. A 2SLS technique is applied to estimate the macro model using pooled data over the period from 1973-1979. Countries included in this study are: Indonesia, Iran, Kuwait, Libya, Nigeria, Saudi Arabia, and Venezuela. The estimated macro model ismore » used as a constraint in the process of maximization of a quadratic social welfare function which includes all of some of the endogenous variables of the model as well as the only control variable, namely, oil exports. Optimal oil production for the period 1974-1981 is calculated based on three different scenarios (A, B, and C). The empirical results indicate that oil revenue is an important factor in determination of GNP, government revenues, and expenditures, consumption, and money supply. The price level does not influence imports, consumption, and demand for money balances. Also, the nontraded goods industry seems to be an isolated industry, and distribution of income changes to the detriment of this industry as the economy becomes more open to international trade. The paper concludes that if economic growth is the main objective of policy makers, greater utilization of oil resources is required. Finally, it suggests more reliance on market forces and less subsidy programs.« less
  • This dissertation examines the impact of the increase in oil prices in 1973 and thereafter on economic development in the Organization of Petroleum Exporting Countries (OPEC) in general, and in Iraq and Algeria in particular. It attempts to investigate the extent to which these countries have succeeded in utilizing oil revenues to achieve their projected goals: diversification of their economies in order to reduce dependence on exporting crude oil which is an exhaustible resource; and acceleration of the rate of growth of the non-oil sector in order to increase its contribution to GDP and foreign-exchange earnings as well as tomore » maintain the growth of the economy in the post-oil age. While the increase in oil revenues greatly reduced the capital constraint to growth, it did not remove all other constraints at the same time. Thus, bottlenecks in transportation, institutions, skilled labor, raw and construction materials remained important obstacles. According to the criteria used by this study to judge the performance of the Iraqi and the Algerian economies after 1973, both countries did quite well. However, one of the findings about Iraq is that while the rate of growth of real per capita GDP accelerated after 1973, the rate of growth of real per capita non-oil GDP did not. Algeria succeeded in diversifying her economy, since the rate of growth of non-oil GDP accelerated after 1973, compared to the earlier period.« less
  • This research investigates the nature and strategy of international cartels to determine both what constitutes a cartel and the causes of OPEC's longevity. To achieve that end, the study examines the political and economic background that led to the Organization's creation and determined its evolution. The study analyzes the factors underlying changes in the oil market and in the outlook of the oil-producing nations for the purpose of drawing some conclusions concerning the manner in which the contemporary, quasi-cartelistic OPEC system operates, and to set out the far-reaching implications of its emergence. What were the circumstances which have thus farmore » favored cartelization and sustained the cohesiveness and power of OPEC. It is argued that links within OPEC have been forged by a mixture of politics and economics. Economic considerations created OPEC and maintained it through its early years, but political necessity and solidarity helped later to cement the various divergent blocks together. Contrary to expectations, political conflicts among the major members failed to cripple or destroy OPEC. Political links helped override economic disagreements, while economic links helped overcome political ill will.« less