Oil supply and oil price determination among OPEC and non-OPEC countries: Bayesian Granger network analysis

This study examines the relationship between oil production and oil price determination among OPEC and non-OPEC countries during the period of 1965–2021. The study period chosen captures perfectly the various historical geopolitical crises, oil shock supply, GFCS and recent global health pandemic that have stirred up the global issue of oil price war among leading oil producing countries. After carrying out the preliminary tests, we adopt both the static and dynamic Bayesian Graphical Network causality along with the traditional Granger causality test for robustness analysis. Our results show Saudi Arabia as the world leading producer of oil and Russia as the main determinants of the global oil prices, while USA acts as a stabilizer in the global oil market. The reliability of our results lies in the very low in-sample forecast error. The implication of our results is that Saudi Arabia, Russia and USA as leading oil producing countries matter for oil price and oil supply determination in the global market. Therefore, the three countries should cooperate with other OPEC and non-OPEC member countries than compete to ensure stability in oil price and the global economy. The outcome of this study can serve as a guide to oil producing cartels in coordinating the global oil price for global economic stability.