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A micro-based model for world oil market

Author

Listed:
  • Espinasa, Ramon
  • ter Horst, Enrique
  • Reyes, Sergio Guerra
  • Manzano, Osmel
  • Molina, German
  • Rigobon, Roberto

Abstract

In this paper, we study the supply–demand drivers of the price of oil over the last two decades. We address the problem of endogeneity using a novel SVAR approach, which allows us to incorporate technological restrictions that occur at the micro level in the production of crude oil to solve the identification problem in a reduced-form regression analysis that seeks to disentangle the drivers of oil prices. We explore the relationships between oil prices, rig counts, oil production and an index of world economic activity, and provide results for a heterogeneous set of countries. We find that when oil prices peaked in mid-2008—reaching almost US$150 compared to US$14 in 1998, a large proportion of the price move can be explained through a purely demand and supply factors.

Suggested Citation

  • Espinasa, Ramon & ter Horst, Enrique & Reyes, Sergio Guerra & Manzano, Osmel & Molina, German & Rigobon, Roberto, 2017. "A micro-based model for world oil market," Energy Economics, Elsevier, vol. 66(C), pages 431-449.
    • Handle: RePEc:eee:eneeco:v:66:y:2017:i:c:p:431-449
    DOI: 10.1016/j.eneco.2017.06.019
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    References listed on IDEAS

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    Cited by:

    1. Le, Thai-Ha & Le, Anh Tu & Le, Ha-Chi, 2021. "The historic oil price fluctuation during the Covid-19 pandemic: What are the causes?," Research in International Business and Finance, Elsevier, vol. 58(C).
    2. Aray, Henry & Vera, David, 2024. "A tale of oil production collapse," Resources Policy, Elsevier, vol. 93(C).
    3. Theodosios Perifanis, 2019. "Detecting West Texas Intermediate (WTI) Prices’ Bubble Periods," Energies, MDPI, vol. 12(14), pages 1-16, July.
    4. Laura H Gunn & Enrique ter Horst & Talar W Markossian & German Molina, 2018. "Online interest regarding violent attacks, gun control, and gun purchase: A causal analysis," PLOS ONE, Public Library of Science, vol. 13(11), pages 1-15, November.
    5. Kheiravar, Khaled H, 2019. "Economic and Econometric Analyses of the World Petroleum Industry, Energy Subsidies, and Air Pollution," Institute of Transportation Studies, Working Paper Series qt3gj151w9, Institute of Transportation Studies, UC Davis.

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    More about this item

    Keywords

    Oil prices; Rigs; Oil production; SVAR;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D00 - Microeconomics - - General - - - General
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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