Is the recent low oil price attributable to the shale revolution?

Abstract

The U.S. Energy Information Administration estimates that approximately 52% of total U.S. crude oil was produced from shale oil resources in 2015. We examine whether the recent low crude oil price is attributable to this shale revolution in the U.S., using a SVAR model with structural breaks. Our results reveal that U.S. JEL classification: C32, E32, F43.

The U.S. Shale Oil Revolution and the Behavior of Commodity Prices

“…In addition, the shale oil revolution represents a giant step in the goal of making the United States the world's leading crude oil producer, ahead of the top OPEC producer, Saudi Arabia, by the mid-2020s and evolving into a net oil exporter by 2030 (see the International Energy Agency projection of 2012). In this vein, the technological change in the oil and gas extractive industry has sped-up the rate of production in the United States; has seen the U.S. domestic oil production surge from 5 million barrels per day in 2008 to more than 9 million barrels per day in recent months; is responsible for about half of U.S. total crude oil production in 2015, and reduced the U.S. oil imports from OPEC to a 28-year low (Bataa and Park, 2017;Khan, 2017). It has also engendered cheaper energy prices for residential, commercial, and industrial consumers (due to relative lower cost of shale oil production in the United States relative to most of the world) and improved targets to meet domestic consumption.…”

“…In the literature, studies on the shale oil revolution, as well as the possible spillover effects, are gradually emerging. The few related empirical papers are those conducted by Mȃnescu and Nuno (2015); Bilgili et al (2016); Ansari (2017); Bataa and Park (2017) and Paris (2017) and Monge et al (2017) and their findings offer some insightful motivations for further empirical inquiry. For instance, Bataa and Park (2017) and Monge et al (2017) find that the shale oil revolution has a greater potential to influence global oil prices.…”

“…The few related empirical papers are those conducted by Mȃnescu and Nuno (2015); Bilgili et al (2016); Ansari (2017); Bataa and Park (2017) and Paris (2017) and Monge et al (2017) and their findings offer some insightful motivations for further empirical inquiry. For instance, Bataa and Park (2017) and Monge et al (2017) find that the shale oil revolution has a greater potential to influence global oil prices. On the other hand, Mȃnescu and Nuno (2015) reveal that the impact of the shale oil revolution on the GDP of oil importers is more likely to be minimal given that the consequences of the expected increases in U.S. oil supply due to the shale oil revolution filter through (consumer) prices.…”

“…First, the shale oil revolution represents a significant leap especially for the United States in its quest to improve crude oil production capacity to overtake Saudi Arabia as the leading global oil producer (see the International Energy Agency projection of 2012). Second, the shale oil revolution has been linked to the recent oil market imbalances and oil price fluctuations even as it affords the United States considerable advantage in the international oil scene (Hamilton, 2014;Mȃnescu and Nuno, 2015;Arezki and Blanchard, 2014;Bilgili et al, 2016;Baumeister and Kilian, 2016;Ansari, 2017;Bataa and Park, 2017).…”

“…It is therefore safe to refer to shale oil as an unconventional crude oil (Zendehboudi and Bahadori, 2017a). There are evidences in recent times that the United States has been able to significantly increase its total crude oil supply chiefly due to the shale oil revolution and this oil sector revolution in the Unites States has not only evoked oil price responses, but also induced reactions from OPEC regarding production quotas (Khan, 2017;Bataa and Park, 2017;Genc, 2017;Kim, 2018). These arguments point to the particular relevance of unconventional crude oil, hence, by implication, our research focus on the oil-commodities dynamics must necessarily emanate from unconventional oil and trace the transmission of shocks via the conventional crude oil.…”