Non-market forces significantly affect oil prices

Non-market effects, such as strategic decisions by the Organization of the Petroleum Exporting Countries, energy legislation and speculative bubbles, move crude oil prices away from the level implied by supply and demand for extended periods. These effects should be more proactively monitored and regulated to suit national and international objectives.

Messages for Policy

• Non-market forces — such as strategic moves by key players such as OPEC, political events, panic buying and speculative bubbles — move crude oil prices away from the level implied by market fundamentals by large amounts for extended periods.

• These deviations can transfer billions of dollars between consumers and producers and between oil producing and oil consuming nations.

• It should not be assumed that market fundamentals always determine price in the oil market.

• The role of non-market forces in changing prices should be quantitatively monitored.

• Policy makers should be more proactive in regulation of the non-market forces and their effects, in service of economic, environmental and welfare goals.