The market power of OPEC

Abstract

This paper analytically addresses the question, to which degree the market power of OPEC is the key reason for the world market price of crude oil to exceed marginal extraction costs. Describing the various determinants of both extraction costs and the oil price constitutes the basis for an in-depth discussion on the relative impact of these variables. We argue that despite OPEC’s significant market power, other forces such as steadily increasing global demand, temporary supply constraints, or a growing importance of resource pragmatism and nationalism play a much greater role than OPEC’s market power.