Kiel Working Papers, Kiel Institute for World Economics
No 1014:
Crude Oil Price Fluctuations and Saudi Arabian Behaviour
Roberto A. De Santis
Abstract: This study seeks to explain why crude oil prices
fluctuate, the main cause being the quota regime, which characterises the
OPEC agreements. Given that the Saudi oil supply is inelastic in the short
term, a shock in the oil market is accommodated by an immediate price
change. In contrast, a dominant firm behaviour in the long term causes an
output change, which is accompanied by a smaller price change. This
explains why oil prices overshoot. The results of a general equilibrium
model applied to Saudi Arabia support this analysis. They also indicate
that Saudi Arabia does not have any incentive in altering the crude oil
market equilibrium with either positive or negative supply shocks; and that
its behaviour is asymmetric in the presence of world demand shocks, having
an incentive (disincentive) in intervening if a negative (positive) demand
shock hits the crude oil market. A second set of simulations is designed to
understand what might be a correct OECD policy to lower prices. A tax cut
would worsen the situation, whereas policies which can increase the price
elasticity of demand seem to be very effective.
Keywords: Crude oil prices, OPEC countries, export quota, computable general equilibrium; (follow links to similar papers)
JEL-Codes: D58; F13; Q40; (follow links to similar papers)
46 pages, October 2000
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Downloadable files:
kap1015.pdf 
Download Statistics
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design Joakim Ekebom
