Abstract
The United States is committed to technological improvements in horizontal drilling and hydraulic fracturing in its drive of toppling the world's leading oil producers by the mid-2020s and evolving into a net oil exporter by 2030. Consequently, these technological innovations revolutionized the U.S. oil sector and the international oil market with increasing relevance of the shale oil and attendant shock spillovers to financial and commodity markets. Upon these attractions and consistent with evidence in the literature, we trace the oil price and commodity price dynamics to the shale oil revolution using a recursive structural VAR model of the shale supply shocks. In line with the standard practice of ensuring sensitivity of results, we conduct analyses such as impulse responses, forecast-error variance decomposition, and historical decompositions to accommodate energy and nonenergy commodity components. We show, in addition to the popular view in the extant literature, that the shale oil revolution is not only associated with the recent oil price plunge, but also responsible for the tumble in the total energy-based commodity prices with crude oil price being just a component.
Highlights
Due to unabated reliance of the world’s economy on fossil fuels in the face of sustained energy demand worldwide, the shale oil revolution came about through advances in horizontal drilling and hydraulic fracturing, a technological leap heralding improvement in exploration, extraction, processing, and drilling oil and gas from previously nonrecoverable sources (Wakamatsu and Aruga, 2013; Melikoglu, 2014; Bilgili et al, 2016; Zendehboudi and Bahadori, 2017a,b)
We focus on shale oil supply shocks (LSHALE) through responses from crude oil output (LCRUDE), oil price (LOILP), and all-commodity prices (LCOMM) and follow it up by replacing all-commodity prices with nonfuel prices (LNONFUEL) for robustness
The resulting technological change in the oil and gas extractive industry aimed at furthering this goal has, among others, sped up the rate of crude production in the United States; has seen a surge in the U.S domestic oil production; is responsible for all-time low U.S oil imports from OPEC; and has enhanced employment and income generation in resourcerich communities
Summary
Due to unabated reliance of the world’s economy on fossil fuels in the face of sustained energy demand worldwide, the shale oil revolution came about through advances in horizontal drilling and hydraulic fracturing, a technological leap heralding improvement in exploration, extraction, processing, and drilling oil and gas from previously nonrecoverable sources (shales) (Wakamatsu and Aruga, 2013; Melikoglu, 2014; Bilgili et al, 2016; Zendehboudi and Bahadori, 2017a,b). The shale oil revolution represents a giant step in the goal of making the United States the world’s leading crude oil producer, ahead of the top OPEC producer, Saudi Arabia, by the mid-2020s and evolving into a net oil exporter by 2030 (see the International Energy Agency projection of 2012) In this vein, the technological change in the oil and gas extractive industry has sped-up the rate of production in the United States; has seen the U.S domestic oil production surge from 5 million barrels per day in 2008 to more than 9 million barrels per day in recent months; is responsible for about half of U.S total crude oil production in 2015, and reduced the U.S oil imports from OPEC to a 28-year low (Bataa and Park, 2017; Khan, 2017). These came with consequences for oil-dependent economies such as Yemen, Egypt, Qatar, Saudi Arabia, Nigeria, and Algeria who once enjoyed heavy patronage from the United States energy supply needs, but grapple with lower prices (see Khan, 2017, for more)
Sign-in/Register to view highlights & summary 
Published Version (
Free)
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call