OPEC and world oil security

On the margin, the effectiveness of policy to enhance the stability of world oil market oil conditions greatly depends on which countries supply what economists would call the "marginal barrels." That is, the barrels whose production responds to changes in demand. If the countries dominating the production of the marginal barrels are relatively unstable, policies to reduce world oil consumption or boost oil production from stable suppliers will provide the additional benefit of reducing the contribution of unstable producers to the world oil market. If the countries dominating the marginal barrel are relatively stable, however, policies to reduce world oil consumption or boost oil production from stable suppliers will be less effective in promoting oil market stability. Typically, we think of the highest cost producers as supplying the marginal barrel of oil, but our assessment finds it quite likely that OPEC dominates production of the marginal barrel of world oil. Moreover, OPEC members have been among the more unstable producers on a historical basis. Hence, reducing world oil consumption and promoting oil production in stable non-OPEC countries will enhance world oil security. Policies to promote stability in OPEC countries also would enhance world oil security. - Highlights: • Historically, OPEC members have been among the more unstable oil producers. • OPEC's exercise of market power increases its share of the marginal barrel of oil. • Reducing world consumption would enhance world oil security. • Increasing non-OPEC sources of oil would enhance world oil security. • Promoting stability in OPEC countries would enhance world oil security.