Abstract
An annual, small-scale econometric model of the world oil market was developed to analyze oil market conditions and oil prices for the period 1986–1991. The model determines the oil price by a market-clearing condition, given world economic activity and the strategic supply behavior of the OPEC core countries. The effects of OPEC production cut in 1987 upon oil prices are evaluated, and alternative oil price profiles are provided. A simulation experiment suggests that if the OPEC core is pressed to defend the OPEC share in oil supply, then wide price swings may become inevitable.
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