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Explanations for the 2014 oil price decline: Supply or demand?

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  • Prest, Brian C.

Abstract

The Brent price of crude oil declined from $112 in June 2014 to a low of $31 in January 2016 (both nominal prices), a cumulative decrease of more than 70%. Some attribute the decline to increased oil production due to the U.S. shale revolution. This paper proposes a variety of diagnostics to assess the how consistent this explanation is with the data. I find that the data are broadly inconsistent with this attribution of the decline to shale oil. Rather, the data are more consistent with a demand-side explanation of weakening global economic conditions and demand for commodities, including but not limited to oil. In summary, there is no evidence that the U.S. shale revolution played a significant role in the decline in oil prices since 2014. Rather, the evidence suggests that weakening oil demand played a much stronger role in driving the 2014 decline in oil prices.

Suggested Citation

  • Prest, Brian C., 2018. "Explanations for the 2014 oil price decline: Supply or demand?," Energy Economics, Elsevier, vol. 74(C), pages 63-75.
    • Handle: RePEc:eee:eneeco:v:74:y:2018:i:c:p:63-75
    DOI: 10.1016/j.eneco.2018.05.029
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    More about this item

    Keywords

    Crude oil prices; Oil; Tight oil; Shale oil;
    All these keywords.

    JEL classification:

    • L7 - Industrial Organization - - Industry Studies: Primary Products and Construction
    • 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

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