- Email: [email protected]
How does OPEC allocate quotas?
Journal of Energy Finance and Development 4 (1999) 137 ± 148
How does OPEC allocate quotas? John Gaulta,*, Charles Spiererb, Jean-Luc Bertholetb, Bahman Karbassiounc a
John Gault, Geneva 13, Chemin Alois-Pictet, 1234 Geneva, Switzerland b University of Geneva, Geneva, Switzerland c Independent Consultant, Vienna, Austria
Abstract Since 1982, members of the Organization of Petroleum Exporting Countries (OPEC) have frequently agreed upon an overall oil production ceiling and individual production quotas. Nonetheless, OPEC has never adopted a published, explicit formula for allocating those quotas. While quotas were seemingly allocated on an ad hoc basis, it is discernible that taken together, the allocations display remarkable consistency. This article attempts to demystify this question by modeling and testing OPEC's quota allocation behavior. While all the proposed models appear to be supported by the results, the authors prefer the simplest formulations. D 2000 Elsevier Science Inc. All rights reserved.
1. Introduction Members of the Organization of Petroleum Exporting Countries (OPEC) have established overall production ceilings and allocated those ceilings among themselves on many occasions since March 1982. Observers of the petroleum industry have attempted to describe and explain the allocation process (Gault et al., 1989; Mabro, 1989; Bakhtiari, 1992; Alsalem et al., 1997). OPEC itself tried and failed in the late 1980s to agree upon an explicit formula for quota allocation.1 In spite of the wide perception that OPEC production restraint currently has little or no influence on oil prices (Al-Saif, 1997; Morse, 1997), and in spite of the surpassing of quotas by many OPEC members, it remains important to understand how the quota allocation process has worked, for several reasons: first, since early 1998, OPEC has been * Corresponding author. Tel.: +41-22-343-4986; fax: +41-22-300-2223. E-mail address: [email protected] (J. Gault) 1 Middle East Economic Survey, Vol. XXX, No. 1, 13 October 1986, pp. A3 ± A4. The OPEC Secretariat recommended formulae based upon production capacity as recently as 1989. See Middle East Economic Survey, Vol. XXXII, No. 51, 25 September 1989, p. A2. 1085-7443/00/$ ± see front matter D 2000 Elsevier Science Inc. All rights reserved. PII: S1085-7443(99)00007-1
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struggling to impose a series of production cuts using, as an arbitrary base, production levels of February 1998, without explaining the choice of that base. Second, the members' frequent non-observance of agreed quotas might be due in part to perceptions that their quota allocations have been somehow ``unfair'' (Ait-Laoussine, 1997; Salman, 1997). Third, if OPEC were to adopt an explicit allocation formula, the members' perceptions of the ``fairness'' of their allocation may be enhanced. Finally, OPEC's share of the world oil market is expanding, and OPEC's system of production restraint in the future may have greater impact on the market than it has today. Even without the adoption of an explicit formula, awareness of the consistency of past allocations could facilitate future negotiations. On the other hand, there may be reasons why a switch by OPEC to the use of an explicit formula would best be made sooner rather than later (Salman, 1999). If, for example, OPEC were to switch to an explicit formula based on the members' production capacities, the switch would most easily be achieved at a time when total OPEC production is relatively close to total OPEC production capacity. More generally, the approach taken in this article could be useful to other international organizations, both governmental and non-governmental, which regularly allocate production quotas (for example, in commodity agreements) or other burdens of membership through ad hoc negotiation. In the case of OPEC, we infer an implicit logic and consistency behind the allocation process. To a considerable extent, production quotas have been allocated in relation to individual members' production capacities. However, the magnitude of the role played by production capacities has differed in two distinct periods (see Fig. 1). During the period roughly from 1982 to the Gulf War of 1990, OPEC needed to manage a substantial overhang of excess production capacity. Perhaps, not surprisingly, some members with the highest incomes per capita (notably Saudi Arabia) accepted disproportionately low quotas during this period, while some other members (especially those with large populations and low income per capita) were the clear beneficiaries of disproportionately high quota allocations. Thus, economic and political considerations played an important (and measurable) role in the quota allocation logic. Since the Gulf War, OPEC has had to manage a much smaller surplus of production capacity. As the overall ceiling on OPEC supply has been much closer to the total OPEC production capacity, individual quotas have necessarily been allocated in a manner more closely related to individual capacities; economic or political factors consequently have played a lesser role in explaining quota allocations. Our analytical attention initially focused on production capacity for several reasons: first, beginning in the 1930s, several oil producing states in the United States enforced compulsory oil production restraint (``prorationing'') based proportionally on production capacities.2 Second, the founders of OPEC, and particularly Perez Alfonzo and Abdullah Tariki, favored a form of ``production programming'' similar to the proration-
2
McDonald (1971, Chap. 9). Wellhead ``allowables'' were calculated from published ``yardsticks'' or from maximum efficient rates of recovery (``MERs''). States failed to agree, however, on a formula allocating production quotas. See Lovejoy and Homan (1967, Chap. 2).
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Fig. 1. OPEC production capacity versus actual production, 1982 ± 1998.
ing applied by the Texas Railroad Commission (Seymour, 1980, pp. 34±37; Hartshorn, 1993, p. 186). Third, production capacity was a factor consistently considered by OPEC as it contemplated a formulaic approach in the 1980s (Al-Saif, 1997; Morse, 1997). Finally, although the allocation of excess production capacity could be based upon a wide variety of parameters, it seems logical to evaluate production capacity itself as a prime criterion.3 The research reported here has the limited purpose of examining how OPEC allocates quotas once an overall production ceiling has been agreed. We do not examine such interesting and worthwhile questions as to how OPEC should determine its overall production ceiling, or whether OPEC production restraint has influenced oil prices.
2. Four models Our analysis simulates how quotas are allocated among OPEC countries. It is inspired by negotiation theory (Raiffa, 1982) and by psychometric modeling. We estimated and tested four specifications in order to simulate how quotas are allocated among OPEC countries. We examined 19 instances of OPEC quota allocations from March 1982 through June 1996. Our aim is to explain the way the total quota is shared, given an overall ceiling. After negotiation, each country is allocated a quota, qit, where i is the index of the country (i = 1 . . . 13) and t is the time order of the negotiation (t = 1 . . . 19). The total quota Qt = iqit is hence exogenous. Note that some
3
Former Saudi Oil Minister Sheikh Ahmed Zaki Yamani (1997) proposes that production capacity be the sole criterion. We use this ``pure prorationing'' approach as our base case below.
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of the qit are equal to zero when the corresponding countries are not allocated quotas at time t. 2.1. Pure prorationing This specification allocates quotas according to a rule of proportionality, based on oil production capacity: cit 1 qit Qt P j cjt where: qit*, quota proportional to capacity of production of the ith country at time t; cit, capacity of production of the ith country at time t. This simple model, without any explanatory parameter to estimate, is the reference against which all more elaborate models will be compared. We expect the three following econometric models to yield a better ``fit'' than this pure prorationing model. 2.2. Prorationing plus In this second model, which we call ``prorationing plus,'' each quota is expressed as a sum of two terms. The first term represents pure prorationing as in Eq. (1), while the second is a function of explanatory variables affecting the willingness of the member country to accept its quota. 2 q q h x ; b it
it
it
i
where: xit, vector of explanatory variables, country i at time t. bi, parameters. Some elements of the bi vector may be common to all countries. The additivity constraints (Qt = iqit, 8t) implies ih(xit, bi) = 0, 8t. Taking a linear form for the h function, these constraints lead to a pair of restrictions depending upon the presence of common variables or parameters in the Eq. (2). (1) Common parameters bi = b. In this case, the additivity constraint is satisfied by the use of the deviations from the sample mean of the variables xit with respect to the countries. (2) Common explanatory variables: xit = xt. In this case, additivity follows from the condition: ibi = 0. The functions h( ) can include both conditions: X X bik xkt bk xikt h xit ; bi k 2 K1
k 2 K2
where k is the kth element of the vectors xit or bi; K1 is the set of indices of the common explanatory variables and K2 the set of the variables specific for each country. The following restrictions have to hold: X bik 0 8k 2 K1 i
X i
xikt 0 8k 2 K2 ; 8t:
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In all statistical models, we add an error term in the following form: qit qit h xit ; bi uit 3 N P P such that uit 0; 8t. Let Ut = (u1t . . . unt)0 and E(UtUt0) = , the additivity implies that the P i1 covariances matrix is not full rank (i0 = 0, where i0 = (1 . . . 1)). In the estimation, we use an P S distance minimal estimator based on a generalized inverse of .4 We also use weighted least squares in order to take account of the duration of the quota. It happened that some OPEC quota allocations were untenable and therefore lasted a short while, whereas other quota allocations endured for many years. These latter allocations may deserve heavier weight than the former. We apply a simple rule that weighs each allocation in proportion to the duration of the decision. 2.3. Pain minimization In this model, which we call ``pain minimization,'' each country would like to produce an amount of oil corresponding to its production capacity (cit). Any cut in that desired production induces a ``cost'' or a negative ``utility,'' which takes the form of a quadratic function. This quadratic function is weighted for each country by a scale function reflecting that country's degree of sensitivity to accepting a lower quota. So, this second model specification minimizes the sum of the loss utilities according to the additivity constraint. X h xit ; bi cit ÿ qit 2 and qit cit ; min i
where h(xit, bi) are the weight functions. The quota derived from this optimization equation will be: hÿ1 xit ; bi qit cit Qt ÿ Ct P ÿ1 j h xjt ; bj
4
where Qt is the overall OPEC ceiling and hÿ1(xit, bi) = 1/h(xit, bi). Multiplying the h scale functions by a constant leaves the quota allocation unchanged, so to identify the parameters, one of them has to be fixed. The above equation shows that the total reduction of production (Qt ÿ Ct 0) is distributed among the participants according to the share of the inverse weight function. The signs of the parameters of this model cannot be directly compared to those of the previous one, because they are basically different. In ``prorationing plus,'' the starting point is the pure prorationing ceiling, which the negotiators will transform by adding a positive or negative quantity according to their arguments and ability. In the ``pain minimization'' model, the starting point is the capacity. The negotiators have to share the burden of the reduction (Qt ÿ Ct) among themselves. As the sum of the capacities of the OPEC countries P We add a rank one matrix, namely (1/N)0, to the estimated residuals covariance matrix computed in Eq. (3). New estimations of the parameters are then obtained, leading to new residuals and a new . The estimation iterates until stability of the parameters is achieved. 4
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exceeds the total ceiling, each one has to accept to produce under its capacity level. The higher the h( ) function (or similarly, the smaller the h( )ÿ1), the less a country is willing to accept a significant reduction. 2.4. IdeÂe fixe In our last econometric specification, which we call ``ideÂe fixe,'' we make two assumptions. We call the first assumption the ``implicit'' quota and the second assumption ``general lowering.'' 2.4.1. Implicit quota We assume first that each government negotiator knows in advance the quota to which he could agree during negotiation. This so-called ``implicit'' quota is not revealed to other members of the Organization because a clever negotiator may believe he can obtain a larger quota than the minimum production quota acceptable to his government.5 2.4.2. General lowering We make the second assumption that during the negotiations, each member of OPEC is eager to have the highest quota for himself and, if possible, to exceed his implicit quota. In order to obtain the highest quota, he must reduce the quotas of the other members. In consequence, the negotiation proceeds as though each member attempts to minimize all other allocations. Hence, we utilize a minimization procedure: X expfh xit ; bi qit ÿ e qit bi0 g 5 min i
under constraint iqit = Qt. One of the bi0s and one of the scale functions h( ) (or one of their parameters bik) must be fixed in order to identify the model. The solution of this optimization problem is: X hÿ1 i P eit ÿ hÿ1 ln h b Qt ÿ fqejt ÿ hÿ1 qit q i i0 i j ln hj bj0 g ÿ1 h j j j
6
where hi(xit, bi) is abbreviated as hi. Note that if the sum of the ``implicit'' quotas should equal the overall ceiling (jq~it = Qt), that would not imply that each country would be allocated its expected quota (q~it): there is no reason why the sum of these implicit quotas, which are unrevealed, should equal the overall ceiling decided by OPEC. The quantities q~it are parameters (``ideÂes fixes'') to be estimated. They are estimated as: eit bi5 qit q
7
where qit* is the pure prorationing quota defined in Eq. (1). We expect the bi5 to be close to 5
This implicit quota is not exactly the ``reservation price'' of negotiation theory (Raiffa, pp. 45 ± 46) because a member may still prefer a lower quota to no agreement at all.
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one. Countries with bi5 larger than one are not willing to reduce their production to the ``fair'' target of the pure prorationing quota system. Those with smaller bi5 accept a heavier sacrifice. The interpretation of the h( ) functions and their parameters is discussed in Appendix A. 3. Estimation of four models Many different choices for the explanatory variables and specifications for the h(xit, bi) functions were compared for the three econometric models (the first model, ``pure prorationing,'' has no parameter). The explanatory variable, qit, indicates quota in thousand barrels per day of an ith country at time t. The explanatory variables are: 1. dt is a dummy variable: 1 for the first OPEC negotiation (1982), 0 otherwise; it is to be interpreted as if the first negotiation was a try. 2. xit1 is total imports per capita of country i at time t (in thousand US$). 3. xit2 is the GDP per capita (in thousand US$). 4. xit3 is the capacity (in thousand barrels per day). 5. xt4 is the oil price (WTI spot), measured in US$/B.6 We retained finally the following three specifications, i.e., one for each model: Prorationing plus: h xit ; bi b1 x1it b2 x2it b3 x3it bi4 x4t :
8
Pain minimization: hÿ1 xit ; bj b0 dt b1 x1it b2 x2it b3 x3it bi4 x4t :
9
IdeÂe fixe: h xit ; bi 1 bi4 1 ÿ dt b1 x1it b2 x2it b3 x3it ;
10
~
and q it = bi5qit*, with qit* = Qt cit/(jcjt). The scale parameters b0i are fixed to zero. 4. Analysis of the results Table 1 shows the estimations based on different models. Those results are discussed below.
6
We use the spot price of West Texas Intermediate crude oil as a proxy for market-determined oil prices more generally. We utilize the spot price quoted at the time just prior to each OPEC quota allocation.
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Table 1 Estimation of OPEC's quota allocation Prorationing plus Global R2 ^ b0 ^
b1
±
0.698
ÿ5.349 (0.067) ÿ3.326 (0.185) 0.019 (0.001)
^
b2 ^
b3
^
Algeria Ecuadora Gabona Indonesia Iran Iraq Kuwait Libya Nigeria Qatar Saudi Arabia U.A.E. Venezuela a
Pain minimization
IdeÂe fixe
0.709 10.00 (fixed) ÿ4.350 (0.645) 0.456 (0.084) 0.138 (0.016)
0.744 0.00001 (fixed) 0.0497 (0.009) ÿ1.727 (0.357)
bi4
R2 of the equation
bi4
^
R2 of the equation
bi4
bi5
^
R2 of the equation
4.460 (0.215) 1.151 (0.057) 0.458 (0.088) 6.365 (0.308) 8.268 (0.308) 3.646 (0.101) ÿ0.360 (0.157) 0.232 (0.264) 0.931 (0.311) 3.565 (0.176) ÿ20.640 (1.100) ÿ4.887 (0.504) 3.379 (0.130)
0.41
ÿ3.644 (0.446) ÿ1.094 (0.124) ÿ0.684 (0.081) ÿ6.426 (0.777) 12.049 (1.528) ÿ8.950 (1.185) ÿ2.854 (0.471) ÿ4.516 (0.544) ÿ6.501 (0.778) ÿ0.944 (0.143) ÿ20.44 (2.643) ÿ3.026 (0.452) ÿ7.417 (0.877)
0.42
0.327 (0.151) 26.067 (11.065) 1 (fixed) 1.776 (0.416) 2.300 (1.802) 4.4234 (49.427) ÿ0.927 (0.010) ÿ0.706 (0.102) 2.008 (0.030) ÿ0.807 (0.030) 1.720 (23.766) ÿ0.895 (0.064) ÿ0.297 (0.911)
0.850 (0.025) 0.966 (0.013) 0.928 (0.027) 0.889 (0.030) 1.042 (0.010) 1.204 (0.018) 0.913 (0.019) 0.910 (0.028) 0.913 (0.017) 0.905 (0.017) 0.966 (0.010) 1.006 (0.028) 0.911 (0.014)
0.47
0.97 0.84 0.48 0.76 0.89 0.67 0.71 0.90 0.52 0.78 0.91 0.89
0.98 0.91 0.49 0.55 0.90 0.78 0.82 0.90 0.48 0.78 0.86 0.93
^
0.96 0.89 0.44 0.82 0.91 0.77 0.81 0.95 0.34 0.85 0.88 0.91
Have since withdrawn from OPEC.
4.1. Pure prorationing This model expressed in Eq. (1) has no parameter, hence, it is not shown in Table 1. The quotas are proportional to production capacity and the global R2 is 0.58.
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4.2. Prorationing plus The estimated parameters in Table 1, b1 for imports per capita, and b2 for GDP per capita, are both negative, suggesting that wealthy countries (those having high imports per capita or high income per capita) are willing to reduce their quotas more than proportionally to their production capacities. Inversely, b3 being positive, members having large production capacities are able to negotiate higher quotas. The parameters for the oil price (bi4) are positive for almost all countries (with the exception of Saudi Arabia, the U.A.E., and Kuwait). Hence, when prices are high, almost every country tries to increase its quota. 4.3. Pain minimization Countries with high imports per capita negotiate in order to be close to their capacity (b1 is negative), whereas those with high incomes per capita or large production capacities accept to produce significantly below their capacity (b2 and b3 are positive). All the estimated bi4 are negative, but their sign has no direct interpretation. Numerical simulations showed that the effect of price on quota is positive for almost all OPEC members: when the oil price is high, members try harder to win quotas closer to their production capacities. As in the previous model, Saudi Arabia, the U.A.E., and Kuwait are exceptions. 4.4. IdeÂe fixe In this last specification, we are mostly interested in the value of the implicit quota and the way each member intends, a priori, to negotiate. The parameters for the implicit quota are the bj5, which are factors by which the pure prorationing quota is multiplied to yield the implicit quotas. The table shows that most countries have an implicit quota close to pure prorationing (bj5'1). Algeria, Indonesia, Qatar, and Libya have an implicit quota that is about 10 percent below the quota allocated to them under pure prorationing. The negotiation process depends on all the parameters involved in the h( ) function. Note that the strong non-linearity of the model prevented us from simultaneously estimating all parameters. Instead, we fixed a value for b1 and estimated the other parameters conditionally to b1. We obtained the best estimation for b1 was held to 0.00001. The coefficient of the price of oil was not significant, so it was excluded from this specification. Overall, our statistical results may be summarized as follows. OPEC quota allocations display regularity. Our models, though varying widely in their assumptions about the negotiation process, lead to similar conclusions. Similarities include the exceptional role of Saudi Arabia, the U.A.E., and Kuwait, and the general tendency of wealthier members to accept smaller quotas. The most important explanatory variable by far is production capacity. The three alternatives to the ``pure prorationing'' specification all yield a better fit than ``pure prorationing,'' but the gain is not large (R2 close to 0.70 compared with 0.58). For the sake of simplicity, we prefer the ``pure prorationing'' or, if necessary, the ``prorationing plus'' formula.
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5. Conclusions OPEC may be able to simplify its quota allocations in the future by adopting a formula implicit in its quota allocations to date. Our study confirms that production capacity should play an important role in any such formula. At times when OPEC's overall ceiling is reasonably close to total OPEC production capacity, it may be possible to dispense with the role of factors other than individual members' production capacities in the process of assigning quotas. Thus, if there were to be a politically convenient moment in which to shift to a formula-based approach, that moment may be now. It is easily understandable, in retrospect, as to why experimentation with a formula approach failed in the 1980s, when OPEC was producing far below its overall capacity and a large surplus had to be allocated. A shift by OPEC to a capacity-based formula would be consistent with the thinking of the founders of the organization and with capacity-based prorationing as practiced in the past in the United States. Whatever formula were chosen, the fewer the characteristics or parameters contained therein, the fewer would be the opportunities for disagreements and the more transparent would be the enforcement mechanism. The use of a simple quota allocation formula would free ministers to spend their time on more important issues, such as OPEC's market share and the level of the overall OPEC ceiling. Those who fear that a capacity-based formula would be compromised by members' exaggerations of capacity should bear in mind that capacity can be independently verified. Additions to capacity are expensive and time-consuming.7 There is nothing inherently objectionable if member countries that invest in increased capacity thereby earn a higher share of the overall ceiling. Those who fear that a capacity-based formula would be too rigid may wish to consider allowing members to trade formula-assigned production quotas among themselves, in the same way that emissions quotas are traded in the United States. OPEC members' planned additions to production capacity, which may well come onstream faster than the expected growth of global requirements for OPEC crude oil (Ismail, 1995, pp. 14±19) are not easily accommodated by the present ad hoc system of negotiating quota allocations. The system is cumbersome and time-consuming, and members have regularly ignored quotas. Our research suggests that OPEC now has a window of opportunity to simplify and render more objective the quota-allocation process. Appendix A. Interpretation of the h( ) function in the ``ideÂe fixe'' model The h( ) function in Eq. (6) implies various attitudes of members in the negotiation process, depending upon the limiting value of the function (0, 1, or infinite).
7
``You can't just call your exploration people and say `bring on another half a million or a million barrels a day' and expect it to be done in a short period of time.'' Sheikh Ali Khalifa Al-Sabah, former Kuwait Oil Minister, quoted in Middle East Economic Survey, Vol. XXXII, No. 51, 18 September 1989, p. A2.
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Case 1: lim h( )!1 eit P qit ! q
1 Rt hÿ1 jt
where Rt = Qtÿj(q~jtÿhjÿ1(ln hj)). Such a country accepts to change its implicit quota according to an ``egalitarian'' rule Rt/hjtÿ1; ``egalitarian'' means that the reduction does not depend exclusively upon the parameters of the ith country accepting the reduction. Case 2: lim h( )!0 X ln hjt et ÿ q : qit ! Qt ÿ hjt j6i This country abandons its implicit quota and accepts the quantity the others countries leave to it. Case 3: lim h( )!1 qit ! q eit : This country will refuse to compromise its implicit quota.To illustrate how negotiators proceeded in one negotiation in our data base, we computed the values of the h( ) functions at the October 1993 negotiations: all the countries except one (U.A.E.) had a value of the h( ) functions smaller than one, the U.A.E. being slightly greater than one (1.22). As most of these empirical h( ) functions are between 0 and 1, the negotiations seem to be ``egalitarian'' as defined in Case 1. References Ait-Laoussine, N. (1997). The proposed increase in OPEC's production ceiling: Will it improve credibility? Middle East Economic Survey 24 November XL(47), D5 ± D7. Al-Saif, W. (1997). OPEC quota system and its impact on the global oil market. In Proceedings of the 20th Annual IAEE Conference in New Delhi, India, January (Vol. 2, pp. 663 ± 672). Alsalem, A. S., Sharma, S. C., & Troutt, M. D. (1997). Fairness measures and importance weights for allocating quotas to OPEC member countries. The Energy Journal, 18(2), 1 ± 21. Bakhtiari, A. M. S. (1992). OPEC production ceilings and quotas: An analytical review. OPEC Review (Autumn) XVI(3), 327 ± 339. Gault, J., Karbassioun, B., Spierer, C., & Bertholet, J. -L. (1989). OPEC production quotas and their application to non-OPEC countries, In Proceedings of the 11th Annual IAEE Conference in Caracas, Venezuela, June 1989 ( pp. 111 ± 121). A summary was published in Energy Policy, January/February 1990, 72 ± 78. Hartshorn, J. E. (1993). Oil Trade: Politics and Prospects. Cambridge: Cambridge Univ. Press. Ismail, I. A. H. (1995). Raising oil output in major producing regions: The financial implications. OPEC Bulletin (November/December) XXVI(10), 14 ± 19. Lovejoy, W. F., & Homan, P. T. (1967). Economic Aspects of Oil Conservation Regulation. Baltimore: Johns Hopkins for RFF. Mabro, R. (1989). OPEC's Production Policies: How Do They Work? Why Don't They Work? Baltimore: Oxford Institute for Energy Studies. McDonald, S. L. (1971). Petroleum Conservation in the United States: An Economic Analysis. Baltimore: Johns Hopkins for RFF. Morse, E. (1997). New era opens for OPEC with end of quota epoch. Petroleum Intelligence Weekly (December 8) XXXVI(49), 5.
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Raiffa, H. (1982). The Art and Science of Negotiation. Cambridge: The Belknap Press of Harvard Univ. Press. Salman, R. (1997). OPEC supply management revisited. Middle East Economic Survey (24 November) XL (47), D8 ± D10. Salman, R. (1999). OPEC: Time to move to production management. Middle East Economic Survey (3 May) XLII(18), D6 ± D7. Seymour, I. (1980). OPEC: Instrument of Change. London: Macmillan. Yamani, S. A. Z. (1997). Shouldering the burden of surplus capacity in the oil industry. Middle East Economic Survey (24 November) XL(47), D1 ± D4.
How does OPEC allocate quotas? John Gaulta,*, Charles Spiererb, Jean-Luc Bertholetb, Bahman Karbassiounc a
John Gault, Geneva 13, Chemin Alois-Pictet, 1234 Geneva, Switzerland b University of Geneva, Geneva, Switzerland c Independent Consultant, Vienna, Austria
Abstract Since 1982, members of the Organization of Petroleum Exporting Countries (OPEC) have frequently agreed upon an overall oil production ceiling and individual production quotas. Nonetheless, OPEC has never adopted a published, explicit formula for allocating those quotas. While quotas were seemingly allocated on an ad hoc basis, it is discernible that taken together, the allocations display remarkable consistency. This article attempts to demystify this question by modeling and testing OPEC's quota allocation behavior. While all the proposed models appear to be supported by the results, the authors prefer the simplest formulations. D 2000 Elsevier Science Inc. All rights reserved.
1. Introduction Members of the Organization of Petroleum Exporting Countries (OPEC) have established overall production ceilings and allocated those ceilings among themselves on many occasions since March 1982. Observers of the petroleum industry have attempted to describe and explain the allocation process (Gault et al., 1989; Mabro, 1989; Bakhtiari, 1992; Alsalem et al., 1997). OPEC itself tried and failed in the late 1980s to agree upon an explicit formula for quota allocation.1 In spite of the wide perception that OPEC production restraint currently has little or no influence on oil prices (Al-Saif, 1997; Morse, 1997), and in spite of the surpassing of quotas by many OPEC members, it remains important to understand how the quota allocation process has worked, for several reasons: first, since early 1998, OPEC has been * Corresponding author. Tel.: +41-22-343-4986; fax: +41-22-300-2223. E-mail address: [email protected] (J. Gault) 1 Middle East Economic Survey, Vol. XXX, No. 1, 13 October 1986, pp. A3 ± A4. The OPEC Secretariat recommended formulae based upon production capacity as recently as 1989. See Middle East Economic Survey, Vol. XXXII, No. 51, 25 September 1989, p. A2. 1085-7443/00/$ ± see front matter D 2000 Elsevier Science Inc. All rights reserved. PII: S1085-7443(99)00007-1
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struggling to impose a series of production cuts using, as an arbitrary base, production levels of February 1998, without explaining the choice of that base. Second, the members' frequent non-observance of agreed quotas might be due in part to perceptions that their quota allocations have been somehow ``unfair'' (Ait-Laoussine, 1997; Salman, 1997). Third, if OPEC were to adopt an explicit allocation formula, the members' perceptions of the ``fairness'' of their allocation may be enhanced. Finally, OPEC's share of the world oil market is expanding, and OPEC's system of production restraint in the future may have greater impact on the market than it has today. Even without the adoption of an explicit formula, awareness of the consistency of past allocations could facilitate future negotiations. On the other hand, there may be reasons why a switch by OPEC to the use of an explicit formula would best be made sooner rather than later (Salman, 1999). If, for example, OPEC were to switch to an explicit formula based on the members' production capacities, the switch would most easily be achieved at a time when total OPEC production is relatively close to total OPEC production capacity. More generally, the approach taken in this article could be useful to other international organizations, both governmental and non-governmental, which regularly allocate production quotas (for example, in commodity agreements) or other burdens of membership through ad hoc negotiation. In the case of OPEC, we infer an implicit logic and consistency behind the allocation process. To a considerable extent, production quotas have been allocated in relation to individual members' production capacities. However, the magnitude of the role played by production capacities has differed in two distinct periods (see Fig. 1). During the period roughly from 1982 to the Gulf War of 1990, OPEC needed to manage a substantial overhang of excess production capacity. Perhaps, not surprisingly, some members with the highest incomes per capita (notably Saudi Arabia) accepted disproportionately low quotas during this period, while some other members (especially those with large populations and low income per capita) were the clear beneficiaries of disproportionately high quota allocations. Thus, economic and political considerations played an important (and measurable) role in the quota allocation logic. Since the Gulf War, OPEC has had to manage a much smaller surplus of production capacity. As the overall ceiling on OPEC supply has been much closer to the total OPEC production capacity, individual quotas have necessarily been allocated in a manner more closely related to individual capacities; economic or political factors consequently have played a lesser role in explaining quota allocations. Our analytical attention initially focused on production capacity for several reasons: first, beginning in the 1930s, several oil producing states in the United States enforced compulsory oil production restraint (``prorationing'') based proportionally on production capacities.2 Second, the founders of OPEC, and particularly Perez Alfonzo and Abdullah Tariki, favored a form of ``production programming'' similar to the proration-
2
McDonald (1971, Chap. 9). Wellhead ``allowables'' were calculated from published ``yardsticks'' or from maximum efficient rates of recovery (``MERs''). States failed to agree, however, on a formula allocating production quotas. See Lovejoy and Homan (1967, Chap. 2).
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Fig. 1. OPEC production capacity versus actual production, 1982 ± 1998.
ing applied by the Texas Railroad Commission (Seymour, 1980, pp. 34±37; Hartshorn, 1993, p. 186). Third, production capacity was a factor consistently considered by OPEC as it contemplated a formulaic approach in the 1980s (Al-Saif, 1997; Morse, 1997). Finally, although the allocation of excess production capacity could be based upon a wide variety of parameters, it seems logical to evaluate production capacity itself as a prime criterion.3 The research reported here has the limited purpose of examining how OPEC allocates quotas once an overall production ceiling has been agreed. We do not examine such interesting and worthwhile questions as to how OPEC should determine its overall production ceiling, or whether OPEC production restraint has influenced oil prices.
2. Four models Our analysis simulates how quotas are allocated among OPEC countries. It is inspired by negotiation theory (Raiffa, 1982) and by psychometric modeling. We estimated and tested four specifications in order to simulate how quotas are allocated among OPEC countries. We examined 19 instances of OPEC quota allocations from March 1982 through June 1996. Our aim is to explain the way the total quota is shared, given an overall ceiling. After negotiation, each country is allocated a quota, qit, where i is the index of the country (i = 1 . . . 13) and t is the time order of the negotiation (t = 1 . . . 19). The total quota Qt = iqit is hence exogenous. Note that some
3
Former Saudi Oil Minister Sheikh Ahmed Zaki Yamani (1997) proposes that production capacity be the sole criterion. We use this ``pure prorationing'' approach as our base case below.
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of the qit are equal to zero when the corresponding countries are not allocated quotas at time t. 2.1. Pure prorationing This specification allocates quotas according to a rule of proportionality, based on oil production capacity: cit 1 qit Qt P j cjt where: qit*, quota proportional to capacity of production of the ith country at time t; cit, capacity of production of the ith country at time t. This simple model, without any explanatory parameter to estimate, is the reference against which all more elaborate models will be compared. We expect the three following econometric models to yield a better ``fit'' than this pure prorationing model. 2.2. Prorationing plus In this second model, which we call ``prorationing plus,'' each quota is expressed as a sum of two terms. The first term represents pure prorationing as in Eq. (1), while the second is a function of explanatory variables affecting the willingness of the member country to accept its quota. 2 q q h x ; b it
it
it
i
where: xit, vector of explanatory variables, country i at time t. bi, parameters. Some elements of the bi vector may be common to all countries. The additivity constraints (Qt = iqit, 8t) implies ih(xit, bi) = 0, 8t. Taking a linear form for the h function, these constraints lead to a pair of restrictions depending upon the presence of common variables or parameters in the Eq. (2). (1) Common parameters bi = b. In this case, the additivity constraint is satisfied by the use of the deviations from the sample mean of the variables xit with respect to the countries. (2) Common explanatory variables: xit = xt. In this case, additivity follows from the condition: ibi = 0. The functions h( ) can include both conditions: X X bik xkt bk xikt h xit ; bi k 2 K1
k 2 K2
where k is the kth element of the vectors xit or bi; K1 is the set of indices of the common explanatory variables and K2 the set of the variables specific for each country. The following restrictions have to hold: X bik 0 8k 2 K1 i
X i
xikt 0 8k 2 K2 ; 8t:
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In all statistical models, we add an error term in the following form: qit qit h xit ; bi uit 3 N P P such that uit 0; 8t. Let Ut = (u1t . . . unt)0 and E(UtUt0) = , the additivity implies that the P i1 covariances matrix is not full rank (i0 = 0, where i0 = (1 . . . 1)). In the estimation, we use an P S distance minimal estimator based on a generalized inverse of .4 We also use weighted least squares in order to take account of the duration of the quota. It happened that some OPEC quota allocations were untenable and therefore lasted a short while, whereas other quota allocations endured for many years. These latter allocations may deserve heavier weight than the former. We apply a simple rule that weighs each allocation in proportion to the duration of the decision. 2.3. Pain minimization In this model, which we call ``pain minimization,'' each country would like to produce an amount of oil corresponding to its production capacity (cit). Any cut in that desired production induces a ``cost'' or a negative ``utility,'' which takes the form of a quadratic function. This quadratic function is weighted for each country by a scale function reflecting that country's degree of sensitivity to accepting a lower quota. So, this second model specification minimizes the sum of the loss utilities according to the additivity constraint. X h xit ; bi cit ÿ qit 2 and qit cit ; min i
where h(xit, bi) are the weight functions. The quota derived from this optimization equation will be: hÿ1 xit ; bi qit cit Qt ÿ Ct P ÿ1 j h xjt ; bj
4
where Qt is the overall OPEC ceiling and hÿ1(xit, bi) = 1/h(xit, bi). Multiplying the h scale functions by a constant leaves the quota allocation unchanged, so to identify the parameters, one of them has to be fixed. The above equation shows that the total reduction of production (Qt ÿ Ct 0) is distributed among the participants according to the share of the inverse weight function. The signs of the parameters of this model cannot be directly compared to those of the previous one, because they are basically different. In ``prorationing plus,'' the starting point is the pure prorationing ceiling, which the negotiators will transform by adding a positive or negative quantity according to their arguments and ability. In the ``pain minimization'' model, the starting point is the capacity. The negotiators have to share the burden of the reduction (Qt ÿ Ct) among themselves. As the sum of the capacities of the OPEC countries P We add a rank one matrix, namely (1/N)0, to the estimated residuals covariance matrix computed in Eq. (3). New estimations of the parameters are then obtained, leading to new residuals and a new . The estimation iterates until stability of the parameters is achieved. 4
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exceeds the total ceiling, each one has to accept to produce under its capacity level. The higher the h( ) function (or similarly, the smaller the h( )ÿ1), the less a country is willing to accept a significant reduction. 2.4. IdeÂe fixe In our last econometric specification, which we call ``ideÂe fixe,'' we make two assumptions. We call the first assumption the ``implicit'' quota and the second assumption ``general lowering.'' 2.4.1. Implicit quota We assume first that each government negotiator knows in advance the quota to which he could agree during negotiation. This so-called ``implicit'' quota is not revealed to other members of the Organization because a clever negotiator may believe he can obtain a larger quota than the minimum production quota acceptable to his government.5 2.4.2. General lowering We make the second assumption that during the negotiations, each member of OPEC is eager to have the highest quota for himself and, if possible, to exceed his implicit quota. In order to obtain the highest quota, he must reduce the quotas of the other members. In consequence, the negotiation proceeds as though each member attempts to minimize all other allocations. Hence, we utilize a minimization procedure: X expfh xit ; bi qit ÿ e qit bi0 g 5 min i
under constraint iqit = Qt. One of the bi0s and one of the scale functions h( ) (or one of their parameters bik) must be fixed in order to identify the model. The solution of this optimization problem is: X hÿ1 i P eit ÿ hÿ1 ln h b Qt ÿ fqejt ÿ hÿ1 qit q i i0 i j ln hj bj0 g ÿ1 h j j j
6
where hi(xit, bi) is abbreviated as hi. Note that if the sum of the ``implicit'' quotas should equal the overall ceiling (jq~it = Qt), that would not imply that each country would be allocated its expected quota (q~it): there is no reason why the sum of these implicit quotas, which are unrevealed, should equal the overall ceiling decided by OPEC. The quantities q~it are parameters (``ideÂes fixes'') to be estimated. They are estimated as: eit bi5 qit q
7
where qit* is the pure prorationing quota defined in Eq. (1). We expect the bi5 to be close to 5
This implicit quota is not exactly the ``reservation price'' of negotiation theory (Raiffa, pp. 45 ± 46) because a member may still prefer a lower quota to no agreement at all.
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one. Countries with bi5 larger than one are not willing to reduce their production to the ``fair'' target of the pure prorationing quota system. Those with smaller bi5 accept a heavier sacrifice. The interpretation of the h( ) functions and their parameters is discussed in Appendix A. 3. Estimation of four models Many different choices for the explanatory variables and specifications for the h(xit, bi) functions were compared for the three econometric models (the first model, ``pure prorationing,'' has no parameter). The explanatory variable, qit, indicates quota in thousand barrels per day of an ith country at time t. The explanatory variables are: 1. dt is a dummy variable: 1 for the first OPEC negotiation (1982), 0 otherwise; it is to be interpreted as if the first negotiation was a try. 2. xit1 is total imports per capita of country i at time t (in thousand US$). 3. xit2 is the GDP per capita (in thousand US$). 4. xit3 is the capacity (in thousand barrels per day). 5. xt4 is the oil price (WTI spot), measured in US$/B.6 We retained finally the following three specifications, i.e., one for each model: Prorationing plus: h xit ; bi b1 x1it b2 x2it b3 x3it bi4 x4t :
8
Pain minimization: hÿ1 xit ; bj b0 dt b1 x1it b2 x2it b3 x3it bi4 x4t :
9
IdeÂe fixe: h xit ; bi 1 bi4 1 ÿ dt b1 x1it b2 x2it b3 x3it ;
10
~
and q it = bi5qit*, with qit* = Qt cit/(jcjt). The scale parameters b0i are fixed to zero. 4. Analysis of the results Table 1 shows the estimations based on different models. Those results are discussed below.
6
We use the spot price of West Texas Intermediate crude oil as a proxy for market-determined oil prices more generally. We utilize the spot price quoted at the time just prior to each OPEC quota allocation.
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Table 1 Estimation of OPEC's quota allocation Prorationing plus Global R2 ^ b0 ^
b1
±
0.698
ÿ5.349 (0.067) ÿ3.326 (0.185) 0.019 (0.001)
^
b2 ^
b3
^
Algeria Ecuadora Gabona Indonesia Iran Iraq Kuwait Libya Nigeria Qatar Saudi Arabia U.A.E. Venezuela a
Pain minimization
IdeÂe fixe
0.709 10.00 (fixed) ÿ4.350 (0.645) 0.456 (0.084) 0.138 (0.016)
0.744 0.00001 (fixed) 0.0497 (0.009) ÿ1.727 (0.357)
bi4
R2 of the equation
bi4
^
R2 of the equation
bi4
bi5
^
R2 of the equation
4.460 (0.215) 1.151 (0.057) 0.458 (0.088) 6.365 (0.308) 8.268 (0.308) 3.646 (0.101) ÿ0.360 (0.157) 0.232 (0.264) 0.931 (0.311) 3.565 (0.176) ÿ20.640 (1.100) ÿ4.887 (0.504) 3.379 (0.130)
0.41
ÿ3.644 (0.446) ÿ1.094 (0.124) ÿ0.684 (0.081) ÿ6.426 (0.777) 12.049 (1.528) ÿ8.950 (1.185) ÿ2.854 (0.471) ÿ4.516 (0.544) ÿ6.501 (0.778) ÿ0.944 (0.143) ÿ20.44 (2.643) ÿ3.026 (0.452) ÿ7.417 (0.877)
0.42
0.327 (0.151) 26.067 (11.065) 1 (fixed) 1.776 (0.416) 2.300 (1.802) 4.4234 (49.427) ÿ0.927 (0.010) ÿ0.706 (0.102) 2.008 (0.030) ÿ0.807 (0.030) 1.720 (23.766) ÿ0.895 (0.064) ÿ0.297 (0.911)
0.850 (0.025) 0.966 (0.013) 0.928 (0.027) 0.889 (0.030) 1.042 (0.010) 1.204 (0.018) 0.913 (0.019) 0.910 (0.028) 0.913 (0.017) 0.905 (0.017) 0.966 (0.010) 1.006 (0.028) 0.911 (0.014)
0.47
0.97 0.84 0.48 0.76 0.89 0.67 0.71 0.90 0.52 0.78 0.91 0.89
0.98 0.91 0.49 0.55 0.90 0.78 0.82 0.90 0.48 0.78 0.86 0.93
^
0.96 0.89 0.44 0.82 0.91 0.77 0.81 0.95 0.34 0.85 0.88 0.91
Have since withdrawn from OPEC.
4.1. Pure prorationing This model expressed in Eq. (1) has no parameter, hence, it is not shown in Table 1. The quotas are proportional to production capacity and the global R2 is 0.58.
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4.2. Prorationing plus The estimated parameters in Table 1, b1 for imports per capita, and b2 for GDP per capita, are both negative, suggesting that wealthy countries (those having high imports per capita or high income per capita) are willing to reduce their quotas more than proportionally to their production capacities. Inversely, b3 being positive, members having large production capacities are able to negotiate higher quotas. The parameters for the oil price (bi4) are positive for almost all countries (with the exception of Saudi Arabia, the U.A.E., and Kuwait). Hence, when prices are high, almost every country tries to increase its quota. 4.3. Pain minimization Countries with high imports per capita negotiate in order to be close to their capacity (b1 is negative), whereas those with high incomes per capita or large production capacities accept to produce significantly below their capacity (b2 and b3 are positive). All the estimated bi4 are negative, but their sign has no direct interpretation. Numerical simulations showed that the effect of price on quota is positive for almost all OPEC members: when the oil price is high, members try harder to win quotas closer to their production capacities. As in the previous model, Saudi Arabia, the U.A.E., and Kuwait are exceptions. 4.4. IdeÂe fixe In this last specification, we are mostly interested in the value of the implicit quota and the way each member intends, a priori, to negotiate. The parameters for the implicit quota are the bj5, which are factors by which the pure prorationing quota is multiplied to yield the implicit quotas. The table shows that most countries have an implicit quota close to pure prorationing (bj5'1). Algeria, Indonesia, Qatar, and Libya have an implicit quota that is about 10 percent below the quota allocated to them under pure prorationing. The negotiation process depends on all the parameters involved in the h( ) function. Note that the strong non-linearity of the model prevented us from simultaneously estimating all parameters. Instead, we fixed a value for b1 and estimated the other parameters conditionally to b1. We obtained the best estimation for b1 was held to 0.00001. The coefficient of the price of oil was not significant, so it was excluded from this specification. Overall, our statistical results may be summarized as follows. OPEC quota allocations display regularity. Our models, though varying widely in their assumptions about the negotiation process, lead to similar conclusions. Similarities include the exceptional role of Saudi Arabia, the U.A.E., and Kuwait, and the general tendency of wealthier members to accept smaller quotas. The most important explanatory variable by far is production capacity. The three alternatives to the ``pure prorationing'' specification all yield a better fit than ``pure prorationing,'' but the gain is not large (R2 close to 0.70 compared with 0.58). For the sake of simplicity, we prefer the ``pure prorationing'' or, if necessary, the ``prorationing plus'' formula.
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5. Conclusions OPEC may be able to simplify its quota allocations in the future by adopting a formula implicit in its quota allocations to date. Our study confirms that production capacity should play an important role in any such formula. At times when OPEC's overall ceiling is reasonably close to total OPEC production capacity, it may be possible to dispense with the role of factors other than individual members' production capacities in the process of assigning quotas. Thus, if there were to be a politically convenient moment in which to shift to a formula-based approach, that moment may be now. It is easily understandable, in retrospect, as to why experimentation with a formula approach failed in the 1980s, when OPEC was producing far below its overall capacity and a large surplus had to be allocated. A shift by OPEC to a capacity-based formula would be consistent with the thinking of the founders of the organization and with capacity-based prorationing as practiced in the past in the United States. Whatever formula were chosen, the fewer the characteristics or parameters contained therein, the fewer would be the opportunities for disagreements and the more transparent would be the enforcement mechanism. The use of a simple quota allocation formula would free ministers to spend their time on more important issues, such as OPEC's market share and the level of the overall OPEC ceiling. Those who fear that a capacity-based formula would be compromised by members' exaggerations of capacity should bear in mind that capacity can be independently verified. Additions to capacity are expensive and time-consuming.7 There is nothing inherently objectionable if member countries that invest in increased capacity thereby earn a higher share of the overall ceiling. Those who fear that a capacity-based formula would be too rigid may wish to consider allowing members to trade formula-assigned production quotas among themselves, in the same way that emissions quotas are traded in the United States. OPEC members' planned additions to production capacity, which may well come onstream faster than the expected growth of global requirements for OPEC crude oil (Ismail, 1995, pp. 14±19) are not easily accommodated by the present ad hoc system of negotiating quota allocations. The system is cumbersome and time-consuming, and members have regularly ignored quotas. Our research suggests that OPEC now has a window of opportunity to simplify and render more objective the quota-allocation process. Appendix A. Interpretation of the h( ) function in the ``ideÂe fixe'' model The h( ) function in Eq. (6) implies various attitudes of members in the negotiation process, depending upon the limiting value of the function (0, 1, or infinite).
7
``You can't just call your exploration people and say `bring on another half a million or a million barrels a day' and expect it to be done in a short period of time.'' Sheikh Ali Khalifa Al-Sabah, former Kuwait Oil Minister, quoted in Middle East Economic Survey, Vol. XXXII, No. 51, 18 September 1989, p. A2.
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Case 1: lim h( )!1 eit P qit ! q
1 Rt hÿ1 jt
where Rt = Qtÿj(q~jtÿhjÿ1(ln hj)). Such a country accepts to change its implicit quota according to an ``egalitarian'' rule Rt/hjtÿ1; ``egalitarian'' means that the reduction does not depend exclusively upon the parameters of the ith country accepting the reduction. Case 2: lim h( )!0 X ln hjt et ÿ q : qit ! Qt ÿ hjt j6i This country abandons its implicit quota and accepts the quantity the others countries leave to it. Case 3: lim h( )!1 qit ! q eit : This country will refuse to compromise its implicit quota.To illustrate how negotiators proceeded in one negotiation in our data base, we computed the values of the h( ) functions at the October 1993 negotiations: all the countries except one (U.A.E.) had a value of the h( ) functions smaller than one, the U.A.E. being slightly greater than one (1.22). As most of these empirical h( ) functions are between 0 and 1, the negotiations seem to be ``egalitarian'' as defined in Case 1. References Ait-Laoussine, N. (1997). The proposed increase in OPEC's production ceiling: Will it improve credibility? Middle East Economic Survey 24 November XL(47), D5 ± D7. Al-Saif, W. (1997). OPEC quota system and its impact on the global oil market. In Proceedings of the 20th Annual IAEE Conference in New Delhi, India, January (Vol. 2, pp. 663 ± 672). Alsalem, A. S., Sharma, S. C., & Troutt, M. D. (1997). Fairness measures and importance weights for allocating quotas to OPEC member countries. The Energy Journal, 18(2), 1 ± 21. Bakhtiari, A. M. S. (1992). OPEC production ceilings and quotas: An analytical review. OPEC Review (Autumn) XVI(3), 327 ± 339. Gault, J., Karbassioun, B., Spierer, C., & Bertholet, J. -L. (1989). OPEC production quotas and their application to non-OPEC countries, In Proceedings of the 11th Annual IAEE Conference in Caracas, Venezuela, June 1989 ( pp. 111 ± 121). A summary was published in Energy Policy, January/February 1990, 72 ± 78. Hartshorn, J. E. (1993). Oil Trade: Politics and Prospects. Cambridge: Cambridge Univ. Press. Ismail, I. A. H. (1995). Raising oil output in major producing regions: The financial implications. OPEC Bulletin (November/December) XXVI(10), 14 ± 19. Lovejoy, W. F., & Homan, P. T. (1967). Economic Aspects of Oil Conservation Regulation. Baltimore: Johns Hopkins for RFF. Mabro, R. (1989). OPEC's Production Policies: How Do They Work? Why Don't They Work? Baltimore: Oxford Institute for Energy Studies. McDonald, S. L. (1971). Petroleum Conservation in the United States: An Economic Analysis. Baltimore: Johns Hopkins for RFF. Morse, E. (1997). New era opens for OPEC with end of quota epoch. Petroleum Intelligence Weekly (December 8) XXXVI(49), 5.
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Raiffa, H. (1982). The Art and Science of Negotiation. Cambridge: The Belknap Press of Harvard Univ. Press. Salman, R. (1997). OPEC supply management revisited. Middle East Economic Survey (24 November) XL (47), D8 ± D10. Salman, R. (1999). OPEC: Time to move to production management. Middle East Economic Survey (3 May) XLII(18), D6 ± D7. Seymour, I. (1980). OPEC: Instrument of Change. London: Macmillan. Yamani, S. A. Z. (1997). Shouldering the burden of surplus capacity in the oil industry. Middle East Economic Survey (24 November) XL(47), D1 ± D4.