The value of OPEC’s spare capacity to the oil market and global economy

Abstract

We investigate the extent to which OPEC has succeeded in its self-stated mission of stabilising the oil market and the implications for the world’s economy. We discuss the modelling framework developed by Pierru, Smith and Zamrik (2018) and Pierru, Smith and Almutairi (2020) and update their analyses. Unstabilised monthly oil prices that would have prevailed in the absence of OPEC’s spare capacity policy are determined for the September 2001–June 2020 period. Overall, OPEC’s management of spare capacity has significantly decreased the monthly volatility of the oil price. Three subperiods (commodity boom, market-share campaign, OPEC+) can, however, be distinguished in terms of the impact on price volatility. The annual value of OPEC’s spare capacity to the world’s economy is estimated to be 193.1 billion in 2019 US dollars.