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Explanations for the 2014 oil price decline: Supply or demand?

Brian Prest

Energy Economics, 2018, vol. 74, issue C, 63-75

Abstract: The Brent price of crude oil declined from $112 in June 2014 to a low of $31 in January 2016 (both nominal prices), a cumulative decrease of more than 70%. Some attribute the decline to increased oil production due to the U.S. shale revolution. This paper proposes a variety of diagnostics to assess the how consistent this explanation is with the data. I find that the data are broadly inconsistent with this attribution of the decline to shale oil. Rather, the data are more consistent with a demand-side explanation of weakening global economic conditions and demand for commodities, including but not limited to oil. In summary, there is no evidence that the U.S. shale revolution played a significant role in the decline in oil prices since 2014. Rather, the evidence suggests that weakening oil demand played a much stronger role in driving the 2014 decline in oil prices.

Keywords: Crude oil prices; Oil; Tight oil; Shale oil (search for similar items in EconPapers)
JEL-codes: L7 Q3 Q4 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.eneco.2018.05.029

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