Energy Strategy

Adam Ritchie

Postcard from Algiers: Why an OPEC agreement in Vienna is unlikely and oil prices will remain low

Middle East and North Africa

OPEC represents a complex version of the classic game theory problem; the prisoner’s dilemma. To optimise collective value creation, OPEC members should increase production when prices are high, to gain market share, and reduce production when prices are low, to support price recovery. Consistent with other prisoner’s dilemma problems, research proves that each OPEC member is instead individually incentivised to increase production whether prices are low or high. This has been the behaviour exhibited by most OPEC members throughout the cartel’s history.

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