* - expanding oil supply - oil companies have invested $350 billion in new regions outside of OPEC since 1980, and scarcely anything within them (1998 figures).
* - rise of the futures market - along with spot markets, this has undermine OPEC's ability to set prices. According to Chalabi, "OPEC's member countries now sell most of their oil on a contract basis using prices related by formulae to spot oil prices […], which are themselves closely related to futures prices."
* - revolution in oil technology - it is now cheaper and less risky to find and develop oil in high-cost areas. Once found, "it can be brought on-stream both more cheaply and more quickly."
I found one piece that was a neoclassical (bear with me) angle where OPEC controls price, but obviously not it's competitor's output. So, in this framework, non-OPEC nations constitute a "competitive fringe" (like, 60% of production), and Saudi Arabia, but neither OPEC as a whole nor the core nations, functions like a "dominant firm." Within OPEC, the Saudi's role as swing producer is unique from the other nations, hence it's exemption from the quota system. The same piece (by A. F. Alhajji and David Huettner) said there is a negative correlation between Saudi Arabia's output and the rest of OPEC. Only Saudi Arabia makes voluntary cuts, that is, cuts not induced by war or market conditions. Non-OPEC nations produce at or near capacity, and OPEC nations tend toward maximizing their own share of production while trying to shrug off the burden of curtailment to their cohorts.
M.A. Adelman says that, having fallen from 65% to 35% of the oil market, there's a threshold below which OPEC is likely to collapse. What that threshold is he couldn't be exact about. Still, a rebound in Iraqi oil production -- post-sanctions -- might achieve this, increasing the burden of production cuts on other OPEC nations.
So, I take it that the Saudis have a unique role, owing to low-cost production and unparalleled capacity, in the global oil market, but not an exclusive one.
I'd love to hear other's comments.
-- Shane
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