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The Impact of the Shale Oil Revolution on U.S. Oil and Gasoline Prices

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  • Kilian, Lutz

Abstract

This article examines how the shale oil revolution has shaped the evolution of U.S. crude oil and gasoline prices. It puts the evolution of shale oil production into historical perspective, highlights uncertainties about future shale oil production, and cautions against the view that the U.S. may become the next Saudi Arabia. It then reviews the role of the ban on U.S. crude oil exports, of capacity constraints in refining and transporting crude oil, of differences in the quality of conventional and unconventional crude oil, and of the recent regional fragmentation of the global market for crude oil for the determination of U.S. oil and gasoline prices. It discusses the reasons for the persistent wedge between U.S. crude oil prices and global crude oil prices in recent years and for the fact that domestic oil prices below global levels need not translate to lower U.S. gasoline prices. It explains why the shale oil revolution unlike the shale gas revolution is unlikely to stimulate a boom in oil-intensive manufacturing industries. It also explores the implications of shale oil production for the transmission of oil price shocks to the U.S. economy.

Suggested Citation

  • Kilian, Lutz, 2014. "The Impact of the Shale Oil Revolution on U.S. Oil and Gasoline Prices," CEPR Discussion Papers 10304, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10304
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    References listed on IDEAS

    as
    1. Lutz Kilian, 2017. "The Impact of the Fracking Boom on Arab Oil Producers," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    2. James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 215-283.
    3. David Hackett & Leigh Noda & Susan W. Grissom & Michal C. Moore & Jennifer Winter, 2013. "Pacific Basin Heavy Oil Refining Capacity," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 6(8), February.
    4. Soren T. Anderson & Ryan Kellogg & Stephen W. Salant, 2018. "Hotelling under Pressure," Journal of Political Economy, University of Chicago Press, vol. 126(3), pages 984-1026.
    5. Lutz Kilian, 2014. "Oil Price Shocks: Causes and Consequences," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 133-154, October.
    6. Alquist, Ron & Guénette, Justin-Damien, 2014. "A blessing in disguise: The implications of high global oil prices for the North American market," Energy Policy, Elsevier, vol. 64(C), pages 49-57.
    7. Christiane Baumeister & Lutz Kilian, 2016. "Understanding the Decline in the Price of Oil since June 2014," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(1), pages 131-158.
    8. Hamilton, James D, 1988. "A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 593-617, June.
    9. Belu Mănescu, Cristiana & Nuño, Galo, 2015. "Quantitative effects of the shale oil revolution," Energy Policy, Elsevier, vol. 86(C), pages 855-866.
    10. Lutz Kilian & Robert J. Vigfusson, 2011. "Are the responses of the U.S. economy asymmetric in energy price increases and decreases?," Quantitative Economics, Econometric Society, vol. 2(3), pages 419-453, November.
    11. Severin Borenstein and Ryan Kellogg, 2014. "The Incidence of an Oil Glut: Who Benefits from Cheap Crude Oil in the Midwest?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    12. Catherine Hausman & Ryan Kellogg, 2015. "Welfare and Distributional Implications of Shale Gas," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 71-139.
    13. Hunt Allcott & Daniel Keniston, 2014. "Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America," NBER Working Papers 20508, National Bureau of Economic Research, Inc.
    14. International Monetary Fund, 2013. "United States: Selected Issues," IMF Staff Country Reports 2013/237, International Monetary Fund.
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    More about this item

    Keywords

    Capacity constraints; Export ban; Infrastructure; Oil independence; Oil sands; Oil trade; Refining; Shale oil; Tight oil; Unconventional oil;
    All these keywords.

    JEL classification:

    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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