Cooperate or Compete? Insights from Simulating a Global Oil Market with No Residual Supplier

Structural changes in the oil market, such as the rise of tight oil, are impacting conventional market dynamics and incentives for producers to cooperate. What if OPEC stopped organizing residual production collectively? We develop an equilibrium model to simulate a competitive world oil market from 2020 to 2030. It includes detailed conventional and unconventional oil supplies and financial investment constraints. Our competitive market scenarios indicate that oil prices first decline and tend to recover to reference residual supplier scenario levels by 2030. In a competitive oil market, a reduction in the financial resources made available to the global upstream oil sector leads to increased revenues for lowcost producers such as Saudi Arabia. Compared to the competitive scenario, Saudi Arabia does not benefit from acting alone as a residual supplier, but, under some assumptions, it benefits from being part of a larger group that works collectively as a residual supplier.

Automated summary

Structural changes in the oil market are impacting market dynamics and cooperation among producers. Competitive oil market scenarios indicate that prices decline initially but recover by 2030. A reduction in financial resources can benefit low-cost producers like Saudi Arabia in a competitive market.