Oil market dynamics: A Markow chain analysis.

Since the seventies the Organization of Petroleum Exporting Countries (OPEC) has exercised a monopolistic power playing a dominant role in the oil market, but with varying degrees of influence. The aim of this investigation is to determine which variables explain changes in OPEC’s market power during the last three decades, based on the assumption that oil market participants compete to maximize their market share in time. In particular, the estimation model assumes that the market participation of the two principal oil exporting country groups (OPEC and Non OPEC) follows an Autoregressive First Order Markov Process, in which transition probabilities vary in time by means of a logistic smooth transition function. Results suggest that the level of real oil prices and economic cycles are relevant variables to explain changes in market share dynamic.