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The Shale Revolution and the Dynamics of the Oil Market

Author

Listed:
  • Nathan S. Balke
  • Xin Jin

  • Mine K. Yücel

Abstract

We build and estimate a dynamic, structural model of the world oil market in order to quantify the impact of the shale revolution. We model the shale revolution as a dramatic decrease in shale production costs and explore how the resultant increase in shale production affects the level and volatility of oil prices over our sample. We find that oil prices in 2018 would have been roughly 36% higher had the shale revolution not occurred and that the shale revolution implies a reduction in current oil price volatility around 25% and a decline in long-run volatility of over 50%.

Suggested Citation

  • Nathan S. Balke & Xin Jin & Mine K. Yücel, 2020. "The Shale Revolution and the Dynamics of the Oil Market," Working Papers 2021, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:88323
    DOI: 10.24149/wp2021
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    References listed on IDEAS

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    Cited by:

    1. Tsionas, Mike G. & Philippas, Dionisis & Philippas, Nikolaos, 2022. "Multivariate stochastic volatility for herding detection: Evidence from the energy sector," Energy Economics, Elsevier, vol. 109(C).
    2. Tiwari, Aviral Kumar & Dam, Mehmet Metin & Altıntaş, Halil & Bekun, Festus Victor, 2025. "The dynamic connectedness between oil price shocks and emerging market economies stock markets: Evidence from new approaches," Energy Economics, Elsevier, vol. 141(C).
    3. Adel, Niloofar & Bastianin, Andrea & Pedini, Luca & Visconti, Marta, 2026. "Lifting Constraints: Venezuelan Oil and Global Market Adjustment," FEEM Working Papers 396389, Fondazione Eni Enrico Mattei (FEEM).
    4. Gelain, Paolo & Lorusso, Marco, 2025. "Oil price fluctuations, US banks, and macroprudential policy," Journal of Monetary Economics, Elsevier, vol. 156(C).
    5. Baehr, Christian J., 2026. "Energy Transitions and Political Transformation: Evidence from the Shale Oil Revolution," SocArXiv pc5nz_v1, Center for Open Science.
    6. Jeong, Minhyuk & Ahn, Kwangwon, 2025. "Energy organization sentiment and oil return forecast," Energy Economics, Elsevier, vol. 141(C).

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    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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