The Influence of OPEC+ on Oil Prices: A Quantitative Assessment

Abstract

Since 2017, a new coalition of oil producers led by OPEC and Russia (known as OPEC+) implemented production cuts to limit downward pressure on crude prices. The Covid-19 shock led to a temporary collapse of this coalition and to a price war among OPEC+ members, which contributed to the oil price slump that had originally been caused by widespread containment measures. As the oil market balance seems to crucially hinge on the stability of this coalition, we draw on the 2017–2020 experience to assess the effectiveness of OPEC+ in sustaining oil prices. Using a counterfactual analysis based on two complementary structural vector autoregression (SVAR) models, we find that the impact of OPEC+ on the price of oil was small, owing to significant deviations of oil producers from their assigned quotas. On average, without the OPEC+ cuts, the oil price would have been 6 percent (4 USD) lower than observed.