Quantitative effects of the shale oil revolution

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThe aim of this paper is to analyze the impact of the so-called "shale oil revolution" on oil prices and economic growth. We employ a general equilibrium model of the world oil market in which Saudi Arabia is the dominant firm, with the rest of the producers as a competitive fringe. Our results suggest that most of the expected increase in US oil supply due to the shale oil revolution has already been incorporated into oil prices and that it will produce an additional increase of 0.2 percent in the GDP of oil importers in the period 2010-2018. We also employ the model to analyse the collapse in oil prices in the second half of 2014 and conclude that it was mainly due to positive unanticipated supply shocks.

The Oil Market Reactions to OPEC’s Announcements

“…Not surprisingly, an increasing number of studies have been exploring the consequences of OPEC's power to promote market stability. For example, models are often constructed to conduct theoretical and empirical analyses on OPEC announcements' role on oil prices, using production quotas, market competition, and spare capacity [20][21][22][23][24]. Besides, a common belief is that the market role of OPEC changes between an oil producer and a cartel, which in turn makes oil markets deviate largely from competition [25].…”

The physical market and the WTI/Brent price spread

“…The development of hydraulic fracturing and horizontal drilling technologies has caused a boom in shale oil production over the last few years. According to Energy Information Administration, the average daily production of shale oil is about 3.5 million barrels, three times higher than the daily production in 2010 (EIA, ; Mănescu and Nuño, ). The so‐called ‘shale oil revolution’ increased the availability of US domestic energy availability and reduced its dependence on imported crude.…”

Monetary Policy Effects on Energy Sector Bubbles

“…There has been a lot of debate in macroeconomics regarding the appropriate design of monetary policy in the wake of perceived asset bubbles. At the same time, researchers and policy makers in the field of energy economics have been puzzled by the high volatility of energy prices, as well as by their connection with potential bubbles in the energy sector, fueled by the increased use of advanced technology (for studies on the shale revolution or the boom in the green energy industry, see [18,27,28] or [19], to cite only a few contributions). In this paper, we tried to link the two and looked at the behavior of energy sector stocks following monetary policy shocks.…”

“…It is, therefore, relevant for policy makers, investors, and academics to learn how the energy sector and the measured bubbles in this sector, have reacted to the changing monetary policy conditions, especially in the aftermath of the financial crisis. This can help in understanding the sustainability of the recent booms in green energy, see [18] for a study, or the prospects of continuing the accelerated development in the shale production in the US and other countries, as reported by [19].…”