Modelling oil consumption in Baumeister and Hamilton’s (2019) model of the global oil market

Michał Rubaszek and Karol Szafranek

Economics Letters, 2025, vol. 248, issue C

Abstract: We propose a refinement of the imprecise approximation of the oil consumption growth rate used by Baumeister and Hamilton (2019) in their model of the global oil market. Our modification involves replacing the first difference of global oil inventories by the second difference, which denotes changes in the addition to inventory stock. Accounting for our approximation and updating the sample reduces the short-run price elasticity of oil supply and the contribution of oil supply shocks to oil price fluctuations, aligning the conclusions from the Baumeister and Hamilton’s (2019) model with the consensus in the literature that the supply elasticity is close to zero and that oil demand shocks are the most important driver of oil price fluctuations.

Keywords: Crude oil market; Structural VAR; Supply and demand elasticities; Supply and demand shocks (search for similar items in EconPapers)
JEL-codes: C11 C32 Q31 Q43 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:248:y:2025:i:c:s0165176525000539

DOI: 10.1016/j.econlet.2025.112216

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