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U.S. light tight oil supply flexibility - A multivariate dynamic model for production and rig activity

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  • Storrøsten, Halvor Briseid

Abstract

I examine U.S. light tight oil (LTO) production theoretically and empirically. The theoretical model combines endogenous rig activity and stylized reservoir pressure mechanics with the Hotelling model for exhaustible resources. The empirical section presents a vector error correction model for U.S. LTO production. A one percent increase in the West Texas Intermediate (WTI) oil price results in up to a 0.7 percent increase in LTO supply and a 1.5 percent increase in rig activity. A positive shock to LTO supply has a negative but insignificant effect on the WTI oil price. The results indicate a structural break in March 2020, with LTO being less responsive to the WTI after the outbreak of Covid-19.

Suggested Citation

  • Storrøsten, Halvor Briseid, 2024. "U.S. light tight oil supply flexibility - A multivariate dynamic model for production and rig activity," Energy Economics, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:eneeco:v:131:y:2024:i:c:s014098832400094x
    DOI: 10.1016/j.eneco.2024.107386
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    More about this item

    Keywords

    Oil supply; Rig activity; Elasticity; Tight oil; Shale oil; Vector error correction models;
    All these keywords.

    JEL classification:

    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • 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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