Saudi Arabia and the Oil Market

Abstract

In this study, we document two features that have made Saudi Arabia different from other oil producers. First, it has typically maintained ample spare capacity. Second, its production has been quite volatile even though it has witnessed few domestic shocks. These features can be rationalised in a general equilibrium model in which the oil market is modelled as a dominant producer with a competitive fringe. We show that the net welfare effect of oil tariffs on consumers is null. The reason is that Saudi Arabia's monopolistic rents fall entirely on fringe producers.

Monetary Policy Responses to Oil Price Fluctuations

“…This approach is in line with overwhelming empirical evidence in recent years that the large fluctuations in the real price of oil have been driven by demand shocks (see, for example, Bodenstein and Guerrieri, 2011;Kilian, 2009;Kilian and Hicks, 2011;Kilian andMurphy, 2010, 2012). A number of recent DSGE studies have imposed more structure on the supply side of the crude oil market, often focusing on models of imperfect competition (see, for example, Nakov and Pescatori, 2010a, b;Balke, Brown, and Yu¨cel, 2010;Nakov and Nun˜o, 2011). Finding direct empirical evidence in favor of such models is difficult, given the paucity of relevant data (see, for example, Smith, 2005;Almoguera, Douglas, and Herrera, 2011).…”

“…Even those DSGE studies that have endogenized the real price of oil have made strong and unrealistic simplifying assumptions about the determination of the price of oil in global markets (see, for example, Backus and Crucini, 1998), have ignored monetary policy (see, for example, Backus and Crucini, 1998;Balke, Brown, and Yu¨cel, 2010;Bodenstein, Erceg, and Guerrieri, 2011;Nakov and Nun˜o, 2011), or have ignored the open economy aspect of the transmission of oil price shocks (see, for example, Bodenstein, Erceg, and Guerrieri, 2008;Nakov and Pescatori, 2010a, b). We show that some of the familiar results from closed-economy models carry through to our open economy with endogenous oil prices, while others do not.…”

Quantitative effects of the shale oil revolution

“…In this paper we employ the model introduced in Nakov and Nuño (2014) to analyze the oil market. The model comprises three regions: one oil-importing and two oil-exporting.…”

Quantitative Effects of the Shale Oil Revolution

“…General equilibrium effects are therefore key to understanding the effect of the increase in shale oil production in the United States; in particular, the response of Saudi Arabia is especially relevant. In this paper we employ the model introduced in Nakov and Nuño (2014) to analyze the oil market. The model comprises three regions: one oil-importing and two oil-exporting.…”