The Future of Oil: Geology versus Technology
AbstractWe 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 12/109.
Date of creation: 01 May 2012
Date of revision:
Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-15 (All new papers)
- NEP-CWA-2012-05-15 (Central & Western Asia)
- NEP-ENE-2012-05-15 (Energy Economics)
- NEP-FOR-2012-05-15 (Forecasting)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sorrell, Steve & Miller, Richard & Bentley, Roger & Speirs, Jamie, 2010. "Oil futures: A comparison of global supply forecasts," Energy Policy, Elsevier, vol. 38(9), pages 4990-5003, September.
- Ayres, Robert U., 2007. "On the practical limits to substitution," Ecological Economics, Elsevier, vol. 61(1), pages 115-128, February.
- Ron Alquist & Lutz Kilian & Robert J. Vigfusson, 2011.
"Forecasting the price of oil,"
International Finance Discussion Papers
1022, Board of Governors of the Federal Reserve System (U.S.).
- Ayres, Robert U. & Warr, Benjamin, 2005. "Accounting for growth: the role of physical work," Structural Change and Economic Dynamics, Elsevier, vol. 16(2), pages 181-209, June.
- Martin de Wit & Matthew Kuperus Heun & Douglas J Crookes, 2013. "An overview of salient factors, relationships and values to support integrated energy-economic systems dynamic modelling," Working Papers 02/2013, Stellenbosch University, Department of Economics.
- Virginia Di Nino & Ivan Faiella, 2013. "The Â“newÂ” non-conventional hydrocarbons: the solution to the energy conundrum?," Questioni di Economia e Finanza (Occasional Papers) 205, Bank of Italy, Economic Research and International Relations Area.
- Michael Kumhof & Dirk Muir, 2012. "Oil and the World Economy: Some Possible Futures," IMF Working Papers 12/256, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).
If references are entirely missing, you can add them using this form.