The Future of Oil: Geology Versus Technology

34 Pages Posted: 11 May 2013

See all articles by Jaromír Beneš

Jaromír Beneš

International Monetary Fund (IMF)

Marcelle Chauvet

University of California Riverside

Ondra Kamenik

International Monetary Fund (IMF)

Michael Kumhof

Bank of England

Douglas Laxton

International Monetary Fund (IMF) - Research Department

Susanna Mursula

International Monetary Fund (IMF)

Jack Selody

affiliation not provided to SSRN

Date Written: May 2012

Abstract

We discuss and reconcile two diametrically opposed views concerning the future of world oil production and prices. The geological view expects that physical constraints will dominate the future evolution of oil output and prices. It is supported by the fact that world oil production has plateaued since 2005 despite historically high prices, and that spare capacity has been near historic lows. The technological view of oil expects that higher oil prices must eventually have a decisive effect on oil output, by encouraging technological solutions. It is supported by the fact that high prices have, since 2003, led to upward revisions in production forecasts based on a purely geological view. We present a nonlinear econometric model of the world oil market that encompasses both views. The model performs far better than existing empirical models in forecasting oil prices and oil output out of sample. Its point forecast is for a near doubling of the real price of oil over the coming decade. The error bands are wide, and reflect sharply differing judgments on ultimately recoverable reserves, and on future price elasticities of oil demand and supply.

Keywords: Oil prices, Economic models, External shocks, Oil production, oil supply, oil demand, world oil production, higher oil prices, oil market, output growth, oil shock, world economy, aggregate demand, crude oil, conventional oil, oil and gas, fossil fuels, oil sector, oil reserves, world oil demand, oil industry, world growth, oil shale, oil production forecasts, world output, ecological economics, global supply, price fluctuations, oil recovery, dynamic effects, crude oil market, income elasticities, increased oil prices, oil producers, global oil production, oil price fluctuations, million barrels, energy information administration, oil markets, nonrenewable resources, oil price changes, opec

JEL Classification: C11, C53, Q31, Q32

Suggested Citation

Beneš, Jaromír and Chauvet, Marcelle and Kamenik, Ondra and Kumhof, Michael and Laxton, Douglas and Mursula, Susanna and Selody, Jack, The Future of Oil: Geology Versus Technology (May 2012). IMF Working Paper No. 12/109. Available at SSRN: https://ssrn.com/abstract=2263580

Jaromír Beneš

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Marcelle Chauvet (Contact Author)

University of California Riverside ( email )

900 University Avenue
4136 Sproul Hall
Riverside, CA 92521
United States
(951) 827-1587 (Phone)

HOME PAGE: http://https://sites.google.com/site/marcellechauvet/

Ondra Kamenik

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Michael Kumhof

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Douglas Laxton

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Susanna Mursula

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jack Selody

affiliation not provided to SSRN ( email )

No Address Available

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