Abstract
This study investigates the relationship between oil production and oil market shocks taking into account endogeneity of the oil market factors, during 1986 to 2016. Using the structural VAR framework, we compute the main oil market structural shocks, namely flow supply shocks, global demand shocks that are uncorrelated to supply shocks, and the real crude oil price shocks that are uncorrelated to supply and demand shocks. Next, we apply a PMG method to regress OPEC and non-OPEC oil productions against the three uncorrelated shocks. We find that when the global oil supply and demand increase, producers increase their production, however an increase in the real crude oil prices only weekly trigger OPEC production. Finally, the asymmetric responses are found, as OPEC and non-OPEC producers asymmetrically respond to demand and supply shocks, respectively.
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