Abstract
The structural changes brought about by shale oil revolution have inspired this paper of which the aim is to analyze the potential asymmetries related to the determinants of crude oil production in the USA. Thus, using a Markov-switching dynamic regression model in which parameters change when oil production moves from one regime to the other, it is found that for both oil production and oil relative importance, the regime that was dominant during the 1980s and the early 1990s when oil production in the USA was substantially high is the same regime that has once again become dominant in the decade corresponding to the shale oil revolution. Furthermore, the study reveals the existence of asymmetries in the relationship between US crude oil production and both manufacturing production and the consumer price index. Asymmetries are also found in the relationship between the relative importance US crude oil and manufacturing production. Finally, it is found that the intercept and the variance parameter also vary from one regime to the other, thus justifying the use of regime-dependent models.
Highlights
Hydrocarbons are the primary energy source upon which contemporary civilizations are built
Those correlation coefficients reveal that crude oil production is negatively and significantly associated with inflation (CPI), the price of West Texas Intermediate (WTI) crude, and manufacturing production
The table reveals that the relative importance of oil production is positively and significantly associated with crude oil production, inflation, the term spread, the price of WTI crude, and manufacturing production
Summary
Hydrocarbons are the primary energy source upon which contemporary civilizations are built. They affect almost every aspect of our daily lives from our homes to our schools, hospitals, transportation means, and industries (Trantin 2017). The importance of hydrocarbons is relevant in the case of the USA, the world largest economy and leading oil consumer. US crude oil production decreased steady in the last three decades before the Great Recession, with the Edited by Xiu-Qiu Peng. The decades preceding the Great Recession saw a surge in oil prices as the spot price for the West Texas Intermediate (WTI)—a US benchmark—rose from $3.56 per barrel in August 1972 to $79.93 per barrel in September 2007. Associated with technological progress in horizontal drilling and hydraulic fracturing, this surge in oil prices made it economically viable to extract the oil trapped in rock formations of low permeability and led to what is known today as the shale oil revolution (Trantin 2017; Alvarez and Di Nino 2017)
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