Dynamic panel data approaches for estimating oil demand elasticity

Abstract

This study examines the general relationships between crude oil consumption, real oil price and real GDP using a quarterly time series from 1993 to 2012. Specifically, the long‐term and short‐term GDP and price elasticities of oil consumption per capita were estimated using dynamic panel and pooled data regressions based on Nerlove's oil demand model for 25 countries that represent 75 per cent of global oil demand. Price elasticities were found for most OECD countries. These estimates were low and consistent with previous estimates. According to the study results, the short‐run price elasticity ranged between −0.05 and −0.20 and the long‐run between −0.11 and −0.36. Price elasticities for most non‐OECD countries were either positive or insignificant. Estimates of GDP elasticities varied. The short‐run GDP elasticity was between 0.15 and 1.09, while the long‐run was between 0.21 and 1.54. On average, income elasticity for OECD countries was found to be slightly higher than for non‐OECD countries. Contrary to expectations, we found China's income elasticity to be 0.34 in the short run, but it was 0.76 in the long run.

OPEC, Saudi Arabia, and the shale revolution: Insights from equilibrium modelling and oil politics

“…In line with multiple recent estimations (Caldara et al, 2016;Javan and Zahran, 2015), short-term price elasticity of demand is set equal to -0.1.…”

The shift in global crude oil market structure: A model-based analysis of the period 2013–2017

“…The topic of demand elasticities for crude oil has been widely covered in the literature, where short-term price elasticities in the range of 0.001 to -0.34 having been suggested (e.g., Cooper, 2003;Fattouh, 2007;Hamilton, 2009;Baron et al, 2014). Considering the findings in recent literature on oil demand elasticities (Javan and Zahran, 2015;Caldara et al, 2019), and also in line with the latest oil market model applications in the literature (e.g., Huppmann and Holz, 2012; Ansari, 2017), we assume in our analysis the short-term price elasticity of demand to be equal to -0.1 for all the considered demand regions in the model. Production data is compiled from Oil, Gas, Coal, and Electricity Quarterly Statistics of the International Energy Agency (IEA).…”

Cooperate or Compete? Insights from Simulating a Global Oil Market with No Residual Supplier

“…Regarding the price and income elasticities of oil demand, the relevant literature offers no consensus. The estimates range widely, from -0.01 to -0.58 for price elasticity (ε ) and 0.24 to 1.32 for income elasticity (γ ) (Javan and Zahran 2015). For the simulations presented in this paper, we select -0.25 as the long-run price elasticity of oil demand and 0.75 for the long-run income elasticity.…”