In November 2014, OPEC announced a new strategy geared towards improving its market
share. Oil-market analysts interpreted this as an attempt to squeeze higher-cost producers
including US shale oil out of the market. Over the next year, crude oil prices crashed, with
large repercussions for the global economy. We present a simple equilibrium model that
explains the fundamental market factors that can rationalize such a "regime switch" by
OPEC. These include: (i) the growth of US shale oil production; (ii) the slowdown of global
oil demand; (iii) reduced cohesiveness of the OPEC cartel; (iv) production ramp-ups in other
non-OPEC countries. We show that these qualitative predictions are broadly consistent with
oil market developments during 2014-15. The model is calibrated to oil market data; it
predicts accommodation up to 2014 and a market-share strategy thereafter, and explains large
oil-price swings as well as realistically high levels of OPEC output.
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