IDEAS home Printed from https://ideas.repec.org/a/eee/jrpoli/v73y2021ics0301420721001434.html
   My bibliography  Save this article

Evaluating the influence of energy prices on tight oil supply with implications on the impacts of COVID-19

Author

Listed:
  • Chen, Yan

Abstract

Tight oil reached about 8% of world oil production in 2019, a fraction only lower than Russia and Saudi Arabia. With such a large amount, the fluctuation in tight oil production can substantially influence the balance of the world oil market. However, due to the short history of large-scale tight oil development, the influence of oil prices on tight oil supply is not well studied. This paper analyzes the price responsiveness of tight oil supply in the United States using an econometric method and well-level play-specific panel data. The result is further used to estimate the influence of COVID-19 on tight oil production. The regression results show that the oil price elasticity was 2.0 for tight oil drilling and 0.5 for tight oil production in 2010–2016. The gas price elasticity is insignificant in both cases. Forecasts using the estimated econometric model show that tight oil production will decrease by 1.3–2.3 million barrels per day (16–28%) under different price scenarios. However, tight oil is not likely to be a “swing producer” and OPEC will continue to lead production cuts under low prices. The estimated price elasticities contribute to more accurate forecasts of tight oil supply. The conclusions also have significant policy implications for major oil-producing countries.

Suggested Citation

  • Chen, Yan, 2021. "Evaluating the influence of energy prices on tight oil supply with implications on the impacts of COVID-19," Resources Policy, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:jrpoli:v:73:y:2021:i:c:s0301420721001434
    DOI: 10.1016/j.resourpol.2021.102129
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301420721001434
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.resourpol.2021.102129?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Carol Dahl & Mine K. Yücel, 1991. "What motivates oil producers?: testing alternative hypotheses," Working Papers 9106, Federal Reserve Bank of Dallas.
    2. Paul W. MacAvoy & Robert S. Pindyck, 1973. "Alternative Regulatory Policies for Dealing with the Natural Gas Shortage," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 454-498, Autumn.
    3. Lutz Kilian, 2016. "The Impact of the Shale Oil Revolution on U.S. Oil and Gasoline Prices," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 10(2), pages 185-205.
    4. Richard G. Newell and Brian C. Prest, 2019. "The Unconventional Oil Supply Boom: Aggregate Price Response from Microdata," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    5. Stocker,Marc & Baffes,John & Some,Y. Modeste & Vorisek,Dana Lauren & Wheeler,Collette Mari, 2018. "The 2014-16 oil price collapse in retrospect : sources and implications," Policy Research Working Paper Series 8419, The World Bank.
    6. Zhongmin Wang and Alan Krupnick, 2015. "A Retrospective Review of Shale Gas Development in the United States: What Led to the Boom?," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    7. Hilde C. Bjørnland & Frode Martin Nordvik & Maximilian Rohrer, 2021. "Supply flexibility in the shale patch: Evidence from North Dakota," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(3), pages 273-292, April.
    8. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    9. Richard G. Newell & Brian C. Prest & Ashley B. Vissing, 2019. "Trophy Hunting versus Manufacturing Energy: The Price Responsiveness of Shale Gas," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(2), pages 391-431.
    10. Nixon, Dan & Smith, Tom, 2012. "What can the oil futures curve tell us about the outlook for oil prices?," Bank of England Quarterly Bulletin, Bank of England, vol. 52(1), pages 39-47.
    11. Katircioglu, Salih Turan & Sertoglu, Kamil & Candemir, Mehmet & Mercan, Mehmet, 2015. "Oil price movements and macroeconomic performance: Evidence from twenty-six OECD countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 44(C), pages 257-270.
    12. Robert K. Kaufmann & Cutler J. Cleveland, 2001. "Oil Production in the Lower 48 States: Economic, Geological, and Institutional Determinants," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 27-49.
    13. Kleinberg, R.L. & Paltsev, S. & Ebinger, C.K.E. & Hobbs, D.A. & Boersma, T., 2018. "Tight oil market dynamics: Benchmarks, breakeven points, and inelasticities," Energy Economics, Elsevier, vol. 70(C), pages 70-83.
    14. Smith, James L. & Lee, Thomas K., 2017. "The price elasticity of U.S. shale oil reserves," Energy Economics, Elsevier, vol. 67(C), pages 121-135.
    15. repec:aen:journl:eeep4_1_krupnick is not listed on IDEAS
    16. Margaret A. Walls, 1994. "Using a 'Hybrid' Approach to Model Oil and Gas Supply: A Case Study of the Gulf of Mexico Outer Continental Shelf," Land Economics, University of Wisconsin Press, vol. 70(1), pages 1-19.
    17. Carol Dahl & Mine Yucel, 1991. "Testing Alternative Hypotheses of Oil Producer Behavior," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 117-138.
    18. Atle Oglend, Morten E. Lindbäck, and Petter Osmundsen, 2015. "Shale Gas Boom Affecting the Relationship Between LPG and Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    19. McKie, James W, 1974. "The Political Economy of World Petroleum," American Economic Review, American Economic Association, vol. 64(2), pages 51-57, May.
    20. Libecap, Gary D., 1989. "The Political Economy of Crude Oil Cartelization in the United States, 1933–1972," The Journal of Economic History, Cambridge University Press, vol. 49(4), pages 833-855, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kamel, Ahmed & Elwageeh, Mohamed & Bonduà, Stefano & Elkarmoty, Mohamed, 2023. "Evaluation of mining projects subjected to economic uncertainties using the Monte Carlo simulation and the binomial tree method: Case study in a phosphate mine in Egypt," Resources Policy, Elsevier, vol. 80(C).
    2. Li, Junjie & Zhang, Yueling & Yang, Yanli & Zhang, Xiaomei & Zheng, Yonghong & Qian, Qi & Tian, Yajun & Xie, Kechang, 2022. "Comparative resource-environment-economy assessment of coal- and oil-based aromatics production," Resources Policy, Elsevier, vol. 77(C).
    3. Wei, Ping & Qi, Yinshu & Ren, Xiaohang & Gozgor, Giray, 2023. "The role of the COVID-19 pandemic in time-frequency connectedness between oil market shocks and green bond markets: Evidence from the wavelet-based quantile approaches," Energy Economics, Elsevier, vol. 121(C).
    4. An Cheng & Tonghui Chen & Guogang Jiang & Xinru Han, 2021. "Can Major Public Health Emergencies Affect Changes in International Oil Prices?," IJERPH, MDPI, vol. 18(24), pages 1-13, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hilde C. Bjørnland & Frode Martin Nordvik & Maximilian Rohrer, 2021. "Supply flexibility in the shale patch: Evidence from North Dakota," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(3), pages 273-292, April.
    2. Knut Are Aastveit & Hilde C. Bj�rnland & Thomas S. Gundersen, 2021. "The Price Responsiveness of Shale Producers: Evidence From Micro Data," Working Papers No 05/2021, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    3. Lutz Kilian & Xiaoqing Zhou, 2020. "Does drawing down the US Strategic Petroleum Reserve help stabilize oil prices?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 35(6), pages 673-691, September.
    4. Lutz Kilian & Xiaoqing Zhou, 2023. "The Econometrics of Oil Market VAR Models," Advances in Econometrics, in: Essays in Honor of Joon Y. Park: Econometric Methodology in Empirical Applications, volume 45, pages 65-95, Emerald Group Publishing Limited.
    5. Nathan S. Balke & Xin Jin & Mine K. Yücel, 2020. "The Shale Revolution and the Dynamics of the Oil Market," Working Papers 2021, Federal Reserve Bank of Dallas.
    6. Durand-Lasserve, Olivier & Pierru, Axel, 2021. "Modeling world oil market questions: An economic perspective," Energy Policy, Elsevier, vol. 159(C).
    7. Apergis, Nicholas & Ewing, Bradley T. & Payne, James E., 2021. "The asymmetric relationship of oil prices and production on drilling rig trajectory," Resources Policy, Elsevier, vol. 71(C).
    8. Chen, Yu-Fu & Mu, Xiaoyi, 2021. "Asymmetric volatility in commodity markets," Journal of Commodity Markets, Elsevier, vol. 22(C).
    9. Mugabe, Douglas & Elbakidze, Levan & Zaynutdinova, Gulnara, 2020. "Investments of publicly traded versus privately held firms: evidence from stranded growth options in the U.S. shale gas industry," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304361, Agricultural and Applied Economics Association.
    10. Ferriani, Fabrizio & Natoli, Filippo & Veronese, Giovanni & Zeni, Federica, 2018. "Futures risk premia in the era of shale oil," MPRA Paper 89097, University Library of Munich, Germany.
    11. Valenti, Daniele & Bastianin, Andrea & Manera, Matteo, 2023. "A weekly structural VAR model of the US crude oil market," Energy Economics, Elsevier, vol. 121(C).
    12. Dahl, Carol & Duggan, Thomas E., 1998. "Survey of price elasticities from economic exploration models of US oil and gas supply," Journal of Energy Finance & Development, Elsevier, vol. 3(2), pages 129-169.
    13. Prest, Brian C., 2020. "Supply-Side Reforms to Oil and Gas Production on Federal Lands: Modeling the Implications for Climate Emissions, Revenues, and Production Shifts," RFF Working Paper Series 20-16, Resources for the Future.
    14. Bergholt, Drago & Røisland, Øistein & Sveen, Tommy & Torvik, Ragnar, 2023. "Monetary policy when export revenues drop," Journal of International Money and Finance, Elsevier, vol. 137(C).
    15. Kilian, Lutz, 2022. "Facts and fiction in oil market modeling," Energy Economics, Elsevier, vol. 110(C).
    16. ten Cate, Arie & Mulder, Machiel, 2007. "Impact of the oil price and fiscal facilities on offshore mining at the Dutch Continental Shelf," Energy Policy, Elsevier, vol. 35(11), pages 5601-5613, November.
    17. Timothy Fitzgerald & Kevin Hassett & Cody Kallen & Casey B. Mulligan, 2020. "An Analysis of Vice President Biden's Economic Agenda: The Long Run Impacts of its Regulation, Taxes, and Spending," Working Papers 2020-157, Becker Friedman Institute for Research In Economics.
    18. Kilian, Lutz & Zhou, Xiaoqing, 2022. "Oil prices, exchange rates and interest rates," Journal of International Money and Finance, Elsevier, vol. 126(C).
    19. Valenti, Daniele & Manera, Matteo & Sbuelz, Alessandro, 2020. "Interpreting the oil risk premium: Do oil price shocks matter?," Energy Economics, Elsevier, vol. 91(C).
    20. Richard G. Newell and Brian C. Prest, 2019. "The Unconventional Oil Supply Boom: Aggregate Price Response from Microdata," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jrpoli:v:73:y:2021:i:c:s0301420721001434. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30467 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.