Oil Market Stabilization: The Performance of OPEC and Its Allies

Abstract

We examine the influence of OPEC+ on the level and volatility of oil prices. By extending Pierru et al.’s (2018, 2020) modeling framework, we are able to distinguish OPEC’s particular role and impact from that of its Allies—those countries who joined with OPEC at the end of 2016 in the attempt to stabilize the market. In addition to corroborating earlier results regarding the impact of OPEC’s management of spare capacity prior to 2017, we now present an analysis of how the concerted actions by the larger community of OPEC+ members have affected prices, including during the tumultuous period in which the COVID-19 pandemic took hold. We find that OPEC+’s efforts to stabilize the market reduced price volatility by up to one half, both before and during the pandemic. We attribute most of that reduction to OPEC’s own actions whereas the impact of the Allies’ efforts was mostly to support the price level. In that vein, OPEC+’s management of spare capacity barely impacted the average price over the pre-pandemic period, but, by countering the price collapse caused by the pandemic demand shock, lifted the average price by $35.70 from May 2020 through August 2021.