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Title:Crude Oil Price Fluctuations and Saudi Arabian Behaviour PDF Logo
Authors:De Santis, Roberto A.
Issue Date:2000
Series/Report no.:Kieler Arbeitspapiere 1014
Abstract:This study seeks to explain why crude oil prices fluctuate, the main cause being the quota regime, which characterises the OPEC agreements. Given that the Saudi oil supply is inelastic in the short term, a shock in the oil market is accommodated by an immediate price change. In contrast, a dominant firm behaviour in the long term causes an output change, which is accompanied by a smaller price change. This explains why oil prices overshoot. The results of a general equilibrium model applied to Saudi Arabia support this analysis. They also indicate that Saudi Arabia does not have any incentive in altering the crude oil market equilibrium with either positive or negative supply shocks; and that its behaviour is asymmetric in the presence of world demand shocks, having an incentive (disincentive) in intervening if a negative (positive) demand shock hits the crude oil market. A second set of simulations is designed to understand what might be a correct OECD policy to lower prices. A tax cut would worsen the situation, whereas policies which can increase the price elasticity of demand seem to be very effective.
Subjects:Crude oil prices
OPEC countries
export quota
computable general equilibrium
JEL:Q40
D58
F13
Document Type:Working Paper
Appears in Collections:Kieler Arbeitspapiere, IfW
Publikationen von Forscherinnen und Forschern des IfW

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