The Shale Revolution and the Dynamics of the Oil Market

83 Pages Posted: 8 Jul 2020

See all articles by Nathan S. Balke

Nathan S. Balke

Southern Methodist University (SMU) - Department of Economics; Federal Reserve Bank of Dallas - Research Department

Xin Jin

University of Aberdeen

Mine Yücel

Federal Reserve Bank of Dallas

Date Written: June, 2020

Abstract

We build and estimate a dynamic, structural model of the world oil market in order to quantify the impact of the shale revolution. We model the shale revolution as a dramatic decrease in shale production costs and explore how the resultant increase in shale production affects the level and volatility of oil prices over our sample. We find that oil prices in 2018 would have been roughly 36% higher had the shale revolution not occurred and that the shale revolution implies a reduction in current oil price volatility around 25% and a decline in long-run volatility of over 50%.

JEL Classification: Q41, C32

Suggested Citation

Balke, Nathan S. and Jin, Xin and Yucel, Mine Kuban, The Shale Revolution and the Dynamics of the Oil Market (June, 2020). FRB of Dallas Working Paper No. 2021, Available at SSRN: https://ssrn.com/abstract=3645597 or http://dx.doi.org/10.24149/wp2021

Nathan S. Balke (Contact Author)

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-2693 (Phone)
214-768-1821 (Fax)

Federal Reserve Bank of Dallas - Research Department

PO Box 655906
Dallas, TX 75265-5906
United States

Xin Jin

University of Aberdeen ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Mine Kuban Yucel

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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