A financial option perspective on OPEC strategy

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    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
    Original languageEnglish
    Pages (from-to)1-13
    Number of pages13
    JournalTurkish Economic Review
    Issue number1
    Publication statusPublished - 23 Mar 2019

    Bibliographical note

    Copyright for this article is retained by the author(s), with first publication rights granted to the journal. This is an open-access article distributed under the terms and conditions of the Creative Commons Attribution license (http://creativecommons.org/licenses/by-nc/4.0).


    • OPEC
    • Risk Management
    • Shale Petroleum


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