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The Future of Oil

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Author Info

  • Marcelle Chauvet
  • Jack G. Selody
  • Douglas Laxton
  • Michael Kumhof
  • Jaromir Benes
  • Ondra Kamenik
  • Susanna Mursula

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/109.

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Length: 33
Date of creation: 01 May 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/109

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Related research

Keywords: Oil prices; Economic models; External shocks; Oil production; oil supply; oil demand; world oil production; higher oil prices; oil market; output growth; oil shock; world economy; aggregate demand; crude oil; conventional oil; oil and gas; fossil fuels; oil sector; oil reserves; world oil demand; oil industry; world growth; oil shale; oil production forecasts; world output; ecological economics; global supply; price fluctuations; oil recovery; dynamic effects; crude oil market; income elasticities; increased oil prices; oil producers; global oil production; oil price fluctuations; million barrels; energy information administration; oil markets; nonrenewable resources; oil price changes; opec; gas plants; million barrels per day; gas supply; transitory shocks; oil futures; world oil prices;

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References

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  1. Ayres, Robert U. & Warr, Benjamin, 2005. "Accounting for growth: the role of physical work," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 16(2), pages 181-209, June.
  2. Sorrell, Steve & Miller, Richard & Bentley, Roger & Speirs, Jamie, 2010. "Oil futures: A comparison of global supply forecasts," Energy Policy, Elsevier, Elsevier, vol. 38(9), pages 4990-5003, September.
  3. Ron Alquist & Lutz Kilian & Robert J. Vigfusson, 2011. "Forecasting the Price of Oil," Working Papers, Bank of Canada 11-15, Bank of Canada.
  4. Ayres, Robert U., 2007. "On the practical limits to substitution," Ecological Economics, Elsevier, Elsevier, vol. 61(1), pages 115-128, February.
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Citations

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Cited by:
  1. Chapman, Ian, 2014. "The end of Peak Oil? Why this topic is still relevant despite recent denials," Energy Policy, Elsevier, Elsevier, vol. 64(C), pages 93-101.
  2. Voudouris, Vlasios & Matsumoto, Ken'ichi & Sedgwick, John & Rigby, Robert & Stasinopoulos, Dimitrios & Jefferson, Michael, 2014. "Exploring the production of natural gas through the lenses of the ACEGES model," Energy Policy, Elsevier, Elsevier, vol. 64(C), pages 124-133.
  3. 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.
  4. Michael Kumhof & Dirk Muir, 2012. "Oil and the World Economy," IMF Working Papers 12/256, International Monetary Fund.
  5. Virginia Di Nino & Ivan Faiella, 2013. "The “new” non-conventional hydrocarbons: the solution to the energy conundrum?," Questioni di Economia e Finanza (Occasional Papers), Bank of Italy, Economic Research and International Relations Area 205, Bank of Italy, Economic Research and International Relations Area.

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