Oil supply between OPEC and non-OPEC based on game theory

Abstract

The competing strategies between OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC producers make the oil supply market a complex system, and thus, it is very difficult to model and to make predictions. In this paper, we combine the macro-model based on game theory and micro-model to propose a new approach for forecasting oil supply. We take into account the microscopic behaviour in the clearing market and also use the game relationships to adjust oil supplies in our approach. For the supply model, we analyse and consider the different behaviour of non-OPEC and OPEC producers. According to our analysis, limiting the oil supply, and thus maintaining oil price, is the best strategy for OPEC in the low-price scenario, while the rising supply is the best strategy in the high-price scenario. No matter what the oil price is, the dominant strategy for non-OPEC producers is to increase their oil supply. In the high-price scenario, OPEC will try to deplete non-OPEC’s share in the oil supply market, which is to OPEC’s advantage.