Wednesday, April 29, 2009
Posted by D. Daniel Sokol
A team of Finn Roar Aune (Statistics Norway), Klaus Mohn (University of Stavanger - Industrial Economics), Petter Osmundsen (University of Stavanger - Industrial Economics) and Knut Einar Rosendahl (Statistics Norway) investigate Financial Market Pressures, Tacit Collusion and Oil Price Formation.
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. We apply a partial equilibrium model for the global oil market 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.