OPEC Behaviour through the Lenses of the Oil Price Cycle

Bassam Fattouh, OIES

Since 1986 the year-on-year change in global oil demand has generally exceeded total non-OPEC supply, with the gap increasingly met through OPEC. This is leading to a gradual decline in spare capacity and upward pressure on oil prices. Analysing OPEC’s response to this shows a cyclical pattern and an asymmetry is also evident, in terms of their objectives in a falling market, when they seek to defend oil prices from falling below some level deemed unacceptable; as well as in a rising  market where OPEC seek to increase output in response to customers’ demand at market determined prices. The mechanism and issues associated with these responses are described. Looking ahead, a range of uncertainties continue to exist, including these asymmetrical responses, as well as issues relating to inventories, spare capacity, and the views between OPEC and oil importers.