Model d’examen

some reactions that have potential implications on oil prices. The results lend empirical support to the conclusion of Amano (1987).

7.4 Analysis of the Impact of Actions of Other Market Players on OPEC Stabilisation Policies

To understand these dynamics, OPEC’s stabilisation policies are revisited one after the other in the following sub-sections while taking into consideration the effect of the actions of external players on OPEC’s ability to stabilise the oil prices.

7.4.1 Analysis of OPEC Production Quota and Actions of Other Market Players

From table 7.9, and on the basis of equation 7.10 below, it can be observed that the current OPEC production quota is positively influenced by the lagged valued oil price, lagged values of OPEC production quota, and lagged values of oil market completion from non-OPEC. It is also negatively influenced by lagged values of OPEC production cheating, lagged values of OPEC spare capacity, lagged values of OECD/IEA crude oil consumption and stockpiling.

𝐿𝑂𝑃𝑄_𝑡 = 𝛼_0,2+ 𝛽_2,1𝐿𝑂𝑃𝑄_𝑡−1+ 𝛽_2,2𝐿𝑂𝑃𝑅_𝑡−1+ 𝛽_2,3𝐿𝑂𝑃𝐶_𝑡−1+ 𝛽_2,4𝐿𝑂𝑆𝐶_𝑡−1+ 𝛽_2,5𝐿𝑂𝑂𝑆_𝑡−1+ 𝛽_2,6𝐿𝑂𝑂𝐶_𝑡−1+ 𝛽_2,7𝐿𝑂𝑀𝐶_𝑡−1+ 𝛽_2,8𝑂𝑃𝐵_𝑡−1+ 𝛽_2,9𝑊𝐴𝑅_𝑡−1+ 𝛽_2,10𝐺𝐸𝑅_𝑡−1ℯ_2,𝑡 7.10 OPEC production quota is positively influenced by lagged values of oil price (0.028095) and OPEC production quota (0.728328). This implies that (change) increase in the previous period oil prices increases the current OPEC quota. This action is expected from OPEC but could potentially have two different interpretations. First, oil price shock could have been triggered by any factor not probably mentioned in this study and to understand OPEC’s response we might imply positive relationship of oil prices to OPEC quota to mean that; OPEC increases quota, given the increased oil prices in an attempt to ensure higher production with a view to forcing oil prices down again. The second interpretation might be that OPEC increases production quota consistent with its objective, but going by the theory of markets, it does that in order to benefit from such increased oil prices. Also, OPEC quota is negatively influenced by the lagged values of OPEC production cheating.

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This is expected in the light of earlier findings and logical argument that production cheating is reduced by increased quota allocation to members. In the same connection, OPEC production quota is negatively influenced (i.e. -0.110178) by lagged values of OPEC spare capacity consistent with the findings in sub-section 7.2.3. However, oil market competition from non-OPEC affects non-OPEC production quota positively (i.e. 0.234142). This result is expected because high oil prices are usually followed by increased OPEC production quota and also increased oil market competition from non-OPEC.

Therefore, it is logical to expect positive effects between the two variables.

OPEC production quota is negatively influenced by the OECD/IEA crude oil consumption and stockpiling. This implies that the quota is reduced by increase in the two variables as expected. In the same direction, we find some interesting dynamics from the effects of the exogenous variables as expected. For example, we find in the first model (see table 7.4), we find that OPEC production quota is increased by the introduction of OPEC oil price band policy (0.009943). However, the result in table 7.9 shows a slightly different effect as a result of the introduction of new variables in the model. This might be expected given the nature of the policy demands increase and decrease at some points depending on the need for a situation. However, we find that OPEC production quota is negatively affected by war in Iraq, and global economic recession. In a simple interpretation, OPEC production quota is reduced by the presence or increase in any of the two exogenous events. This is expected in the light of economic theory. Recession usually reduces purchasing power, exports, demand, and GDP of nations (IMF, 2012 and Haughton, 2013). War might also affect economic activities in the nation involved in war, which potentially affects the overall OPEC production quota.

In this regard, the impulse response function of OPEC production quota is analysed and results presented in figure 7.6 with a view to understanding how other players respond to shock in OPEC production quota.

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Figure 7.6: Impulse Response Functions for One Standard Deviation Innovation in Opec Production Quota (Lopq)

Key:

LOPR: Logged values of oil price

LOPQ: Logged values of OPEC production quota LOPC: Logged values of OPEC production cheating LOSC: Logged values of OPEC spare capacity LOOS: Logged values of OECD crude oil stockpiling LOOC: Logged values of OECD crude oil consumption LOMC: Logged values of oil market competition

Figure 7.6 presents seven panels of the VAR impulse responses of all the endogenous variables to the shock in OPEC production quota. From the first panel (i.e. response of LOPR to LOPQ), oil price responds positively to the shock in OPEC production but only in the 1^st period. It changes in the 2^nd period by responding negatively over the remaining periods (2-12). OPEC quota responds positively to OPEC quota (in the second panel of response of LOPQ to LOPQ) from period 1 until period 11. It begins to respond negatively only in the 12^th period. The third panel (i.e. response of LOPC to LOPQ) shows that OPEC production cheating responds negatively to the shock in OPEC

Response to Generalized One S.D. Innov ations ± 2 S.E.

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production quota from period 1 up to period 10 before it emerges positive in period 11 and remains positive over the end of the 12^th period. This implies that increased OPEC production quota is usually received by reduced cheating. The cheating gains momentum with time over the given periods and becomes positive as the response of OPEC quota to the shock in OPEC quota becomes negative (see panel 2 of figure 7.7). The fourth panel of response of LOSC to LOPQ shows that OPEC spare capacity initially responds negatively to the shock in OPEC production quota only from period 1 to 3. It turns to be positive from the 3^rd period as the response of the LOPQ to LOPQ declines towards negative (see panel 2). OPEC spare capacity gradually increases and remains positive and permanent throughout the subsequent periods.

Similarly, the fifth panel shows that oil market competition from non-OPEC responds positively to the shock in OPEC production quota. This remains positive throughout the periods considered but at a gradually declining state.

Usually, OPEC production is often increased when oil prices are high in order to calm the prices low and within the target band. This finding shows that non-OPEC members also react to that OPEC decision at the beginning but as the shock in the OPEC production declines, non-OPEC response also declines with time. The decline in non-OPEC response might be due to the low reserves compared to OPEC or possibly they appear within this critical moment of high prices to grab their market share. In the sixth panel (i.e.

response of LOOS to LOPQ), we observe OECD/IEA crude oil stockpiling responds positively in the 1^st period, and subsequently turns to be negative as the shocks in both oil prices and OPEC quota decline (see 2^nd panel, fig.

7.8, and 7.9). The impulse response continuously declines and reaches its minimum in the fifth period. Thereafter, it begins to grow towards the positive region as it approaches the end of the period considered. Finally, we observe from the last panel (panel 7) in figure 7.9 that OECD/IEA crude oil consumption responds positively to the shock in OPEC production quota from period 1 up to period 4 before changing pattern in period 5 to be negative and permanent throughout the remaining periods. This implies that OECD/IEA crude oil consumption is increased by the increase in the OPEC production quota and is reduced accordingly as the shock reduces.

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However, we compute the variance decomposition of OPEC production quota in table 7.11 to examine the contribution of each independent variable towards explaining variation in the OPEC production quota.