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The Impact of the Fracking Boom on Arab Oil Producers

Lutz Kilian

Year: 2017
Volume: Volume 38
Number: Number 6
DOI: 10.5547/01956574.38.6.lkil
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This article makes four contributions. First, it investigates the extent to which the U.S. fracking boom has caused Arab oil exports to decline since late 2008. Second, the article quantifies for the first time by how much the U.S. fracking boom has lowered the global price of oil. Using a novel econometric methodology, it is shown that in mid-2014, for example, the Brent price of crude oil was lower by $10 than it would have been in the absence of the fracking boom. Third, the article provides evidence that the decline in Saudi net foreign assets between mid2014 and August 2015 would have been reduced by 27% in the absence of the fracking boom. Finally, the article discusses the policy choices faced by Saudi Arabia and other Arab oil producers.

The Unconventional Oil Supply Boom: Aggregate Price Response from Microdata

Richard G. Newell and Brian C. Prest

Year: 2019
Volume: Volume 40
Number: Number 3
DOI: 10.5547/01956574.40.3.rnew
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We analyze the price responsiveness of U.S. conventional and unconventional oil supply across three key stages of oil production: drilling, completion, and production. Drilling is the most important margin, with price elasticities of 1.3 and 1.6 for conventional and unconventional drilling respectively. Well productivity declines as prices rise, implying smaller net supply elasticities of about 1.1 and 1.2. Despite similar supply elasticities, the price response of unconventional supply is larger in terms of barrels because of much higher production per well (~10x initially). Oil supply simulations show a 13-fold larger supply response due to the shale revolution. The simulations suggest that a price rise from $50 to $80 per barrel induces incremental U.S. production of 0.6MM barrels per day in 6 months, 1.4MM in 1 year, 2.4MM in 2 years, and 4.2MM in 5 years. Nonetheless, the response takes much longer than the 30 to 90 days than typically associated with the role of "swing producer."

Cooperate or Compete? Insights from Simulating a Global Oil Market with No Residual Supplier

Bertrand Rioux, Abdullah Al Jarboua, Fatih Karanfil, Axel Pierru, Shahd Al Rashed, and Colin Ward

Year: 2022
Volume: Volume 43
Number: Number 2
DOI: 10.5547/01956574.43.2.brio
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Structural changes in the oil market, such as the rise of tight oil, are impacting conventional market dynamics and incentives for producers to cooperate. What if OPEC stopped organizing residual production collectively? We develop an equilibrium model to simulate a competitive world oil market from 2020 to 2030. It includes detailed conventional and unconventional oil supplies and financial investment constraints. Our competitive market scenarios indicate that oil prices first decline and tend to recover to reference residual supplier scenario levels by 2030. In a competitive oil market, a reduction in the financial resources made available to the global upstream oil sector leads to increased revenues for low-cost producers such as Saudi Arabia. Compared to the competitive scenario, Saudi Arabia does not benefit from acting alone as a residual supplier, but, under some assumptions, it benefits from being part of a larger group that works collectively as a residual supplier.

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