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The Simple Economics of Global Fuel Consumption

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  • Doga Bilgin
  • Reinhard Ellwanger

Abstract

This paper presents a structural framework of the global oil market that relies on information on global fuel consumption to identify flow demand for oil. We show that under mild identifying assumptions, data on global fuel consumption help to provide comparatively sharp insights on elasticities and other key structural parameters of the global oil market. The estimated elasticity of global fuel demand in the short run with respect to crude oil prices is around -2 percent, which is considerably more inelastic than estimates of local fuel demand elasticities based on disaggregated data. Our framework is particularly suitable for understanding the evolution of quantities in the global oil market and provides new evidence on the magnitude of different types of oil price shocks and their macroeconomic and environmental impacts.

Suggested Citation

  • Doga Bilgin & Reinhard Ellwanger, 2019. "The Simple Economics of Global Fuel Consumption," Staff Working Papers 19-35, Bank of Canada.
    • Handle: RePEc:bca:bocawp:19-35
    DOI: 10.34989/swp-2019-35
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    References listed on IDEAS

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    Cited by:

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    2. Ederington, Louis H. & Fernando, Chitru S. & Hoelscher, Seth A. & Lee, Thomas K. & Linn, Scott C., 2019. "A review of the evidence on the relation between crude oil prices and petroleum product prices," Journal of Commodity Markets, Elsevier, vol. 13(C), pages 1-15.
    3. José Carlos Vides & Julia Feria & Antonio A. Golpe & Juan Manuel Martín-Álvarez, 2024. "How do supply or demand shocks affect the US oil market?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-27, December.
    4. Zoundi, Zakaria, 2024. "Wells or Welfare? Macroeconomic implications of the Canadian oil subsidy," Economic Modelling, Elsevier, vol. 139(C).
    5. Reinhard Ellwanger, 2019. "A Structural Model of the Global Oil Market," Staff Analytical Notes 2019-17, Bank of Canada.

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    Keywords

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    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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