Is the US the New Swing Producer? The Price Responsiveness of Tight Oil

Resources for the Future Working Paper No. 17-15

31 Pages Posted: 3 Jan 2018

See all articles by Richard G. Newell

Richard G. Newell

Duke University - Nicholas School of Environment; National Bureau of Economic Research (NBER); Resources for the Future

Brian Prest

Duke University

Date Written: June 19, 2017

Abstract

We analyze the price responsiveness of onshore oil supply from conventional versus new unconventional “tight” formations in the United States. We separately analyze three key stages of oil production: drilling wells, completing wells, and production from completed wells. We find that the important margin is drilling investment. We estimate drilling responses of approximately 1.3 percent for tight oil and 1.1 percent for conventional oil per 1 percent change in oil prices. In addition, tight oil wells produce about 4.6 times more oil compared to conventional ones. Together, the long-run price responsiveness of supply is about 5 times larger for tight oil on a per well basis, and about 9 times larger when accounting for the rise in the number of unconventional wells drilled. Based on these estimates, simulations of the time-profile of oil production response to price changes show that the US supply response is much larger now due to the shale revolution. Nonetheless, it takes many months before a substantial portion of the full supply response is online, longer than the 30 to 90 days typically associated with the role of “swing producer” such as Saudi Arabia.

Suggested Citation

Newell, Richard G. and Prest, Brian, Is the US the New Swing Producer? The Price Responsiveness of Tight Oil (June 19, 2017). Resources for the Future Working Paper No. 17-15, Available at SSRN: https://ssrn.com/abstract=3093968 or http://dx.doi.org/10.2139/ssrn.3093968

Richard G. Newell (Contact Author)

Duke University - Nicholas School of Environment ( email )

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National Bureau of Economic Research (NBER) ( email )

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Resources for the Future ( email )

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Brian Prest

Duke University ( email )

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United States

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