The shift in global crude oil market structure: A model-based analysis of the period 2013–2017

Abstract

This paper analyzes the recent developments in the global oil market, investigating how the 2014–2016 price collapse and the following OPEC+ agreement affected the crude oil market structure and the behavior of major suppliers. To this end, we develop a partial equilibrium model with a spatial structure for the global crude oil market and simulate the market for the period between 2013 and 2017 under different market structure setups. The simulation results reveal that, although the oligopolistic market structures fit overall well to the realized market outcomes, they are not successful at explaining the low prices during 2015 and 2016, which instead are closer to estimated competitive levels. We further suggest that from 2014 onward, the market power potential of major suppliers has shrunk considerably, supporting the view that the market has become more competitive. We also analyze the Saudi Arabia- and Russia-led OPEC+ agreement, and find that planned production cuts in 2017, particularly of Saudi Arabia and Russia, were below the levels of estimated non-competitive market structure setups.