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A financial option perspective on OPEC strategy

Turkish Economic Review

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Title A financial option perspective on OPEC strategy
 
Creator HAAR, Lawrence; Oxford Brookes Business School Oxford Brookes University
 
Subject OPEC; Risk Management; Shale Petroleum.
Q02; Q43; Q48; Q58.
 
Description Abstract. The article examines the use of discretionary production by key OPEC members to protect the long-term value of their reserves.  Although interpretations vary on its behaviour and market power, the organisation sees its role as promoting the security of supply through stabilising markets while protecting market share and ensuring a fair return to capital. Given the new and perennial challenges facing its members, there are diverse views on how these policy objectives may be promoted.  Using option theory, we argue that the market stabilisation policy of OPEC in effect, provides free risk management to the global market and conflicts fundamentally with its long-term objective of protecting market share through discouraging high-cost marginal producers.   Abandoning this policy, the returns to marginal producers, adjusted for risk, would be reduced. As implications of our research, rather than creating a social good through mitigating price risk, OPEC should allow markets to be volatile and even consider using its discretionary buffer in a pro-cyclic manner, to protect the long-term value of its reserves.Keywords. OPEC, Risk Management, Shale Petroleum.JEL. Q02, Q43, Q48, Q58.
 
Publisher Turkish Economic Review
Turkish Economic Review
 
Contributor —
 
Date 2019-03-06
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
—
 
Format application/pdf
 
Identifier http://www.kspjournals.org/index.php/TER/article/view/1848
10.1453/ter.v6i1.1848
 
Source Turkish Economic Review; Vol 6, No 1 (2019): March; 1-13
Turkish Economic Review; Vol 6, No 1 (2019): March; 1-13
2149-0414
 
Language eng
 
Relation http://www.kspjournals.org/index.php/TER/article/view/1848/1843
http://www.kspjournals.org/index.php/TER/article/downloadSuppFile/1848/933
http://www.kspjournals.org/index.php/TER/article/downloadSuppFile/1848/934
http://www.kspjournals.org/index.php/TER/article/downloadSuppFile/1848/948
 
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http://creativecommons.org/licenses/by-nc/4.0