The Future of Oil; Geology Versus Technology
Marcelle Chauvet (),
Jack G. Selody,
Michael Kumhof (),
Ondra Kamenik and
No 12/109, IMF Working Papers from International Monetary Fund
We discuss and reconcile two diametrically opposed views concerning the future of world oil production and prices. The geological view expects that physical constraints will dominate the future evolution of oil output and prices. It is supported by the fact that world oil production has plateaued since 2005 despite historically high prices, and that spare capacity has been near historic lows. The technological view of oil expects that higher oil prices must eventually have a decisive effect on oil output, by encouraging technological solutions. It is supported by the fact that high prices have, since 2003, led to upward revisions in production forecasts based on a purely geological view. We present a nonlinear econometric model of the world oil market that encompasses both views. The model performs far better than existing empirical models in forecasting oil prices and oil output out of sample. Its point forecast is for a near doubling of the real price of oil over the coming decade. The error bands are wide, and reflect sharply differing judgments on ultimately recoverable reserves, and on future price elasticities of oil demand and supply.
Keywords: Demand; Economic models; External shocks; Exhaustible resources; Oil depletion; Fossil fuels; Oil prices; Oil production; Supply; Hubbert’s Peak, Bayesian econometrics, oil supply, oil demand, world oil production, Bayesian Analysis, Forecasting and Other Model Applications, Nonrenewable Resources and Conservation: Demand and Supply, Exhaustible Resources and Economic Development, (search for similar items in EconPapers)
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Journal Article: The future of oil: Geology versus technology (2015)
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