Oil Market Stabilization: The Performance of OPEC and Its Allies

The two main contributions of our analysis are (1) measuring the extent to which cooperation provided by non-OPEC oil producers (the Allies) impacted OPEC’s ability to stabilize prices, and (2) assessing the extent to which OPEC+ was able to offset the unprecedented demand shocks related to COVID-19. Both contributions are achieved via the specification and maximum-likelihood estimation of a structural model of the interaction between OPEC and its Allies — those countries who joined with OPEC at the end of 2016 in the attempt to stabilize the market. Our analysis extends from September 2001 to August 2021, which is an eventful interval that allows us to contrast the implica-tions of cooperative and non-cooperative behavior on the part of the Allies, and to compare OPEC/ OPEC+’s success in stabilizing prices before and during the pandemic. Based on the estimated model, we construct three counterfactual scenarios that distinguish the stabilizing impact of OPEC’s own production decisions from that of its Allies. Consistent with previous results, we find that OPEC substantially reduced oil price volatility during the Commodity Boom period but did not attempt to mitigate volatility during the Market Share Campaign. We show that OPEC+’s management of spare capacity halved price volatility during both Pre-Pandemic and Pandemic periods. that, the Allies’ actions helped to decrease the Period actions reduce three the actions of the Allies no discernable on prior to the