The Unconventional Oil Supply Boom: Aggregate Price Response from Microdata

Richard Newell and Brian Prest

No 23973, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze the price responsiveness of onshore oil supply from conventional versus new unconventional "tight" formations in the United States. We separately analyze three key stages of oil production: drilling wells, completing wells, and production from completed wells. We find that the important margin is drilling investment. We estimate drilling responses of approximately 1.6 percent for tight oil and 1.2 percent for conventional oil per 1 percent change in oil prices. In addition, tight oil wells produce about 4.6 times more oil compared to conventional ones. Together, the long-run price responsiveness of supply is about 6 times larger for tight oil on a per well basis, and about 9 times larger when also accounting for the rise in unconventional-directed drilling. Based on our estimates derived from microdata, we conduct aggregate simulations of incremental oil supply at different time frames and price levels. The simulations show that the U.S. supply response is much larger now due to the shale revolution. Given a price rise to $80 per barrel, U.S. oil production could rise by 0.5 million barrels per day in 6 months, 1.2 million in 1 year, 2 million in 2 years, and 3 million in 5 years. Nonetheless, it takes many months before a substantial portion of the full supply response is online, longer than the 30 to 90 days typically associated with the role of "swing producer" such as Saudi Arabia.

JEL-codes: D24 L71 Q41 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (12)

Published as Richard G. Newell & Brian C. Prest, 2019. "The Unconventional Oil Supply Boom: Aggregate Price Response from Microdata," The Energy Journal, vol 40(3).

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Journal Article: The Unconventional Oil Supply Boom: Aggregate Price Response from Microdata (2019)
Journal Article: The Unconventional Oil Supply Boom: Aggregate Price Response from Microdata (2019)
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