A dynamic game based analysis on the strategic petroleum reserve policies of developing countries

Abstract

Strategic petroleum reserves is an effective tool to deal with uncertainties in the oil supply. Some of developing countries have embarked on SPR planning during the past few years, with the expectation of eliminating the effects of future oil-supply disruptions. However, the stockpile acquisition actions possibly raise world oil prices due to exceptional demand, and consequently raise SPR cost. With consideration on security and cost, there are probably interactions among developing countries. This paper developed a stochastic dynamic Nash game model, in which players compete with each other and make individual decisions to minimize their expected total SPR cost. The model, to some extent, can illustrate the results of two players' strategies for building up and drawing down strategic oil reserves.