OPEC’s Pursuit of Market Stability

Abstract

Maintaining stability in the world oil market is a prominent component of OPEC’s self-stated mission. OPEC’s modus operandi is to tap spare production capacity to offset shocks to demand and supply. The attempt to stabilize the world oil market is not a small or easy task, disruptions to demand and supply are both large and frequent. Indeed, it is entirely possible that, despite best efforts, the attempt might fail. We therefore examine the extent to which OPEC has succeeded in this mission. We assess how effective has been OPEC’s management of its spare capacity to reduce the volatility of the price of oil. We also estimate the value of OPEC’s spare capacity buffer to the global economy and investigate how the benefits of OPEC’s effort to reduce price volatility have been distributed geographically.