In this lecture, we discuss highlights of Chapter 8 from Morecroft (2015) on the industry dynamics linking oil price to global oil producers, with a particular focus on the effect of OPEC (Organization of Petroleum Exporting Countries) and independent producers. The goal is to explain patterns of subtle oscillations, relative stability, and massive fluctuations in the market over time. The model starts with a basic negative feedback model of a free-market economy and then adds a component related to OPEC's cartel influence (the effect of a swing producer in a cartel) and even the eventual addition of Russian oil reserves after the breakdown of the Soviet Union/USSR. System dynamics models help provide insight into the less observable latent variables that are necessary to explain otherwise puzzling patterns in behavior over time.
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