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Financial market pressure, tacit collusion and oil price formation

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  • Aune, Finn Roar
  • Mohn, Klaus
  • Osmundsen, Petter
  • Rosendahl, Knut Einar

Abstract

We explore a hypothesis that a change in investment behaviour among international oil companies (IOC) towards the end of the 1990s had long-lived effects on OPEC strategies, and on oil price formation. Coordinated investment constraints were imposed on the IOCs through financial market pressures for improved short-term profitability in the wake of the Asian economic crisis. A partial equilibrium model for the global oil market is applied to compare the effects of these tacitly collusive capital constraints on oil supply with an alternative characterised by industrial stability. Our results suggest that even temporary economic and financial shocks may have a long-term impact on oil price formation.

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  • Aune, Finn Roar & Mohn, Klaus & Osmundsen, Petter & Rosendahl, Knut Einar, 2010. "Financial market pressure, tacit collusion and oil price formation," Energy Economics, Elsevier, vol. 32(2), pages 389-398, March.
    • Handle: RePEc:eee:eneeco:v:32:y:2010:i:2:p:389-398
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    3. Ahamed, Sonya & Galford, Gillian L. & Panikkar, Bindu & Rizzo, Donna & Stephens, Jennie C., 2024. "Carbon collusion: Cooperation, competition, and climate obstruction in the global oil and gas extraction network," Energy Policy, Elsevier, vol. 190(C).
    4. Huppmann, Daniel, 2013. "Endogenous shifts in OPEC market power - A Stackelberg oligopoly with fringe," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79758, Verein für Socialpolitik / German Economic Association.
    5. Osmundsen, Petter & Rosendahl, Knut Einar & Skjerpen, Terje, 2012. "Understanding Rig Rates," UiS Working Papers in Economics and Finance 2012/9, University of Stavanger.
    6. Lars Lindholt, 2019. "Effects of higher required rates of return on the tax take in an oil province," Discussion Papers 892, Statistics Norway, Research Department.
    7. Osmundsen, Petter & Rosendahl, Knut Einar & Skjerpen, Terje, 2015. "Understanding rig rate formation in the Gulf of Mexico," Energy Economics, Elsevier, vol. 49(C), pages 430-439.
    8. Coad, Alex, 2019. "Persistent heterogeneity of R&D intensities within sectors: Evidence and policy implications," Research Policy, Elsevier, vol. 48(1), pages 37-50.
    9. Klaus Mohn & Bård Misund, 2011. "Shifting sentiments in firm investment: an application to the oil industry," Applied Financial Economics, Taylor & Francis Journals, vol. 21(7), pages 469-479.
    10. Alex Coad, 2017. "Persistent heterogeneity of R&D intensities within sectors: Evidence and policy implications," JRC Working Papers on Corporate R&D and Innovation 2017-04, Joint Research Centre (Seville site).
    11. repec:ocp:rpaper:pp-15/14 is not listed on IDEAS
    12. Finn Roar Aune & Ann Christin Bøeng & Snorre Kverndokk & Lars Lindholt & Knut Einar Rosendahl, 2017. "Fuel Efficiency Improvements: Feedback Mechanisms and Distributional Effects in the Oil Market," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(1), pages 15-45, September.
    13. Durand-Lasserve, Olivier & Pierru, Axel, 2021. "Modeling world oil market questions: An economic perspective," Energy Policy, Elsevier, vol. 159(C).
    14. Daniel Huppmann and Franziska Holz, 2012. "Crude Oil Market Power—A Shift in Recent Years?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    15. Johannes Mauritzen, 2017. "The Effect of Oil Prices on Field Production: Evidence from the Norwegian Continental Shelf," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(1), pages 124-144, February.
    16. Yves Jegourel & Philippe Chalmin, 2017. "The Dynamics of the Price of Raw Materials and Industrial Strategies in African Producer Countries: What are the Challenges?," Post-Print hal-03879779, HAL.
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    19. Lindholt, Lars, 2021. "Effects of higher required rates of return on the tax take in an oil province," Energy Economics, Elsevier, vol. 98(C).
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    22. Berk, Istemi & Çam , Eren, 2019. "The Shift in Global Crude Oil Market Structure: A model-based analysis of the period 2013–2017," EWI Working Papers 2019-5, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).

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    More about this item

    Keywords

    Investment behaviour Market power Oil market Tacit collusion;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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