Future of world crude oil demand, supply, and price under different environmental scenarios

Amin Masoumzadeh summarizes his YSSP project in which he modeled long-term world crude oil supply and demand, and subsequently the global oil price.

Introduction

The future of the world crude oil market depends on many issues, including the oil productions of OPEC and non-OPEC countries. This paper, shows our attempt to model the long-term world crude oil supply and demand, and subsequently the global oil price. The main assumption is that non-OPEC oil producers are price-takers. World crude oil demand is modeled with a time-dependent price elasticity function. Here, two scenarios are compared to diagnose OPEC's supply behavior, “Cartel” and “Separate.” OPEC countries try to maximize their individual profits in the “Separate” scenario and their joint profit in the “Cartel” scenario from 1980 to 2035.

Methodology

While non-OPEC producers are assumed to produce crude oil according to the Hubbert curve, the OPEC countries maximize their profit, taking into account other (non-OPEC) countries’ production and global demand. Depending on whether or not OPEC members collaborate in decision-making on the production quantities, two types of maximization problems are considered. The technique used to solve the model is called the Reactive Programming algorithm.

Results

Our main findings show that the OPEC’s production in the “Cartel” scenario is far from reality in the historical horizon - almost half. The results of the model in the “Separate” scenario indicate a significant consistency with historical data of OPEC production. Accepting the “Separate” scenario, the OPEC’s production share in global market and the crude oil price increase respectively toward 51.5% and 178 (2000$/bbl) in 2035. Finally, carbon tax, as a control variable, is implemented into the consumer price to decrease oil demand and pollution. The higher the carbon tax, the higher the consumer price. The higher consumer price leads to less pollution.

Figure 1

Figure 1. OPEC's crude oil production at different taxes

Supervisors

S.C. Oukouomi Noutchie, North-West University, Mafikeng Campus, South Africa
Elena Rovenskaya, Advanced Systems Analysis Program (ASA), IIASA

Note

Amin Masoumzadeh of the Sharif University of Technology, Iran, is an Iranian citizen. He was funded by IIASA's South African National Member Organization for the YSSP.

Please note these Proceedings have received limited or no review from supervisors and IIASA program directors, and the views and results expressed therein do not necessarily represent IIASA, its National Member Organizations, or other organizations supporting the work.


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Last edited: 23 March 2015

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