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The Oil Extraction Puzzle: Theory and Evidence

Author

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  • Andrew Pickering

Abstract

This paper considers the relationship between the extraction rates and remaining reserves of a non-renewable resource. Linear extraction rules are derived wherein the slope term is the same regardless of the cost parameters and market structure whilst differences are captured by the intercept. Using data from the world oil industry the implied test could not be rejected for the case of 1981 but failed using the 1991 and 2000 data. Latterly, either OPEC members are apparently extracting too slowly or non-OPEC countries are extracting too quickly. Three alternative resolutions of this puzzle are offered.

Suggested Citation

  • Andrew Pickering, 2002. "The Oil Extraction Puzzle: Theory and Evidence," Bristol Economics Discussion Papers 02/534, Department of Economics, University of Bristol, UK.
  • Handle: RePEc:bri:uobdis:02/534
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    File URL: http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp02534.pdf
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    Keywords

    oil extraction; OPEC; non-renewable resource;

    JEL classification:

    • N5 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation

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