A Micro-Based Model for World Oil Market

56 Pages Posted: 13 Jun 2017

See all articles by Ramon Espinasa

Ramon Espinasa

Inter-American Development Bank (IDB)

Sergio Reyes

Inter-American Development Bank (IDB)

Enrique ter Horst

Universidad de los Andes, Colombia - School of Business Administration

Osmel E Manzano

Instituto de Estudios Superiores de Administración (IESA) - Centro Internacional de Energía y Ambiente; Inter-American Development Bank (IDB)

German Molina

Idalion Capital US LP

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: January 11, 2017

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 and Reyes, Sergio and ter Horst, Enrique and Manzano Mazzali, Osmel E and Molina, German and Rigobon, Roberto, A Micro-Based Model for World Oil Market (January 11, 2017). Available at SSRN: https://ssrn.com/abstract=2984461 or http://dx.doi.org/10.2139/ssrn.2984461

Ramon Espinasa (Contact Author)

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Sergio Reyes

Inter-American Development Bank (IDB)

1300 New York Avenue NW
Washington, DC 20577
United States

Enrique ter Horst

Universidad de los Andes, Colombia - School of Business Administration ( email )

Bogota
Colombia

Osmel E Manzano Mazzali

Instituto de Estudios Superiores de Administración (IESA) - Centro Internacional de Energía y Ambiente ( email )

Caracas
Venezuela

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

German Molina

Idalion Capital US LP ( email )

2711 Centerville Rd Ste 400
Wilmington, DE 19808
United States

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-447
Cambridge, MA 02142
United States
617-258-8374 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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