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

Claudia Foroni and Livio Stracca

No 2309, Working Paper Series from European Central Bank

Abstract: 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 à la Stackelberg. We find that the supply function is flatter 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. JEL Classification: Q33, Q41, Q43, C32

Keywords: instrumental variables; oil shocks; oil supply; shale oil; sign restrictions.; structural VAR (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-ene
Note: 3243564
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192309

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