Much ado about nothing? The shale oil revolution and the global supply curve

Arbeitspapier

We focus on the implications of the shale oil boom for the global supply of oil. We begin with a stylized model with two producers, one facing low production costs and one higher production costs but potentially lower adjustment costs, competing á la Stackelberg. We find that the supply function is atter for the high cost producer, and that the supply function for shale oil producers becomes more responsive to demand shocks when adjustment costs decline. On the empirical side, we apply an instrumental variable approach using estimates of demand-driven oil price changes derived from a standard structural VAR of the oil market. A main finding is that global oil supply is rather vertical, practically all the time. Moreover, for the global oil market as a whole, we do not find evidence of a major shift to a more price elastic supply as a result of the shale oil boom.

Object Details

• ISBN: 978-92-899-3571-5
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2309

Classification and Topics

• Classification: Wirtschaft ; Resource Booms ; Energy: Demand and Supply; Prices ; Energy and the Macroeconomy ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
• Subject: Oil supply ; shale oil ; oil shocks ; structural VAR ; instrumental variables ; sign restrictions

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Foroni, Claudia ; Stracca, Livio
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2019

Further information

• DOI: doi:10.2866/039247
• Handle: http://hdl.handle.net/10419/208343
• Last update: 10.03.2025, 11:45 AM CET