Drop In Oil Prices Research Articles

Saudi Arabia and the rentier regime trap: A critical assessment of the plan Vision 2030

The oil price drop which occurred in international markets in 2014 has revived concerns about the economic situation of Saudi Arabia. The country is at a crossroads, as evidenced by both its unsustainable economic model and the plan that the government proposed in spring 2016 to overcome dependence on oil, Vision 2030. This article examines the country's ability to achieve this objective by analysing the Vision 2030 plan and the socio-economic challenges that Saudi Arabia is facing. The economic problems of Saudi Arabia do not stem from the weakness of its institutions. Quite the opposite, forged by oil exports, the structures of its rentier economy are well-established and difficult to push forward. To understand such a state of affairs, this article provides an analysis of the Saudi economy's accumulation regime. Furthermore, the article questions development economics regarding oil-rich countries which are concerned by the Dutch disease issue.

Shifting needs for expertise: Digitized taskscapes in the Norwegian oil and gas industry

This article assesses the shaping of expertise within a small Norwegian firm distributing digital services to the global oil and gas industry. The oil price drop of 2014 shifted firm priorities from creating consulting reports about reliability of resource extracting operations to developing business intelligence software for oil and gas corporations. Drawing on data from ethnographic fieldwork, I seek to trace the transformation of knowledge practices within the intermediary. The investigation reveals that the taskscapes of the firm’s consultants and sales persons were increasingly directed toward interfaces, establishing new techniques of mediation between employees and clients. I argue that the researched firm underwent a successful transition toward the production of software because of its ability to locally transfer knowledge on its software among its internal professional groups.

Inflation target and (a)symmetries in the oil price pass-through to inflation

In this paper we employ state-space models to estimate the pass-through of oil price changes to consumer prices for a large sample of countries from 1970 to 2017. By controlling for self-selection bias and endogeneity and allowing for different responses to positive and negative price changes, we asses the differences between explicit inflation targeting (IT) countries and a control group. Surprisingly perhaps, our results suggest that the pass-through is higher for IT countries. Our main contribution is to show that these is mainly due to IT countries having a significant higher pass-through than non-IT countries when the oil price decreases: a 10% drop in oil price leads about a 0.11% drop in inflation in ITers (of which 4pp are explained by the monetary regime). Importantly, we show that adopting IT reduces the asymmetry of the pass-through. We run several robustness checks and conclude that falling oil prices are more welcomed by the central banks with an IT framework, in particular during deflationary episodes or when inflation is above the target.

Oil and macro-financial linkages: Evidence from the GCC countries

We assess potential roles of recent oil price swings in macro – financial linkages for the case of the Gulf Cooperation Council (GCC) countries using bank-level panel data from 2000 – 2016. Employing both dynamic panel and panel VAR modelling, we document evidence indicating significant implications of oil price changes on the GCC financial and real sectors and significant macro – financial linkages. The results are robust in suggesting favourable effects of positive oil price changes on bank profitability, credit growth and output growth. Likewise, we document robust evidence indicating immediate contraction in credit growth, deterioration in credit quality and decline in economic growth following negative oil price changes. We also note that the implications of oil price changes tend to be felt more strongly by small banks. Finally, we find substantial causal interactions between output growth and bank variables, notable of which are robust findings of significant responses of (i) credit growth and bank profitability to business cycle and (ii) business cycle to credit quality. With the documented roles of oil prices on macro-financial linkages, the oil market developments should be monitored closely and, in anticipation of oil price drops, attention should be given to maintaining lending activity as well as safeguarding banks’ financial soundness such that the contraction of real activity can be contained.

OPEC and Non-OPEC Production, Global Demand, and the Financialization of Oil

Does OPEC still matter? How do OPEC and non-OPEC oil production, global oil demand, and the role of oil as a financial asset influence oil prices? What is the mechanism through which China affects oil prices? These questions reveal the need for a better understanding of oil market dynamics. Our analysis builds on EIA (2018), Ratti and Vespignani (2015), and Kaufman et al. (2004). We extend these analyses by considering the 2014 prolonged oil price drop and accounting for OPEC and non-OPEC production, global demand for oil as well as China’s demand, and the role of oil as a financial asset by employing a vector autoregressive (VAR) model which accounts for cyclical movements. Using monthly data between 1997:01 and 2018:04, the model reveals that: (a) OPEC significantly balances oil markets, implying that OPEC still matters; (b) the role of oil as a financial asset is integral in explaining oil price movements; (c) U.S. oil production affects oil prices, but the influence of other non-OPEC production should not be underestimated; (d) China’s demand for crude oil affects oil prices, but focusing on China rather than global demand overlooks other important market segments, dynamics in the oil market and global economy, and the retaliation risk associated with international trade tensions; and (e) China’s impact on oil prices is driven by domestic demand and the increase in China’s exports of refined products.

Corporate governance and risk taking: the role of board gender diversity

Purpose This paper aims to investigate the association between board gender diversity and bank risk taking in an emerging market context. Design/methodology/approach The association between female board directorship and bank risk taking is examined, while controlling for board characteristics, managerial, concentrated, family and government ownership. Two-stage regression with instrumental variables is used for a sample of banks listed in Gulf Cooperation Council (GCC) countries during 2002-2014. Findings Results show that banks with more female board directors invest in less risky positions; the association is attenuated when the regulatory capital is larger, providing protection against risky investments, and female directors tend to invest less in risky asset positions in Islamic banks relative to conventional banks. Practical implications The relevance of the findings stems from the recent initiatives undertaken by the Basel Committee to address deficient corporate governance structures that lead to bank breakdowns and the diversified economy of the fast-growing GCC market, relying on banking services in the aftermath of the oil price drop. Originality/value This paper provides novel evidence on the influence of board gender diversity on bank risk taking in an emerging market context. This paper fills a gap in prior research by examining bank-specific regulatory capital adequacy and Islamic banking aspects.

Trends and determinants of energy innovations: patents, environmental policies and oil prices

ABSTRACTThis paper examines the relationship between energy innovations, environmental policies and oil prices. With a panel of 19 OECD countries over the period 1990–2013, we test how the stringency of environmental policies has affected the intensity of energy patents, while controlling for the effect of oil prices and other country-level variables. We found that the overall level of policy stringency has exerted a more significant impact than individual country measures. Moreover, the recent reduction of energy patenting is discussed, especially in the light of the staggering drop of oil prices.

Should We Care?: The Economic Effects of Financial Sanctions on the Russian Economy

We employ a Bayesian VAR model to estimate the economic effects on the Russian economy from Western financial sanctions imposed in 2014. Sanctions caused a decrease in the amount of out-standing Russian corporate external debt, but it occurred during an episode of falling oil prices. We disentangle the effects of sanctions and oil prices by computing out-of-sample projections of key Russian macroeconomic variables conditioned solely on the oil price drop and on both the oil price drop and external debt deleveraging. Declining oil prices alone do not explain the depth of economic crisis in Russia, but we get rather accurate conditional forecasts when the actual path of external debt deleveraging is added. We treat the difference between these two projections as the effect of sanctions against Russia. The effect is modest, yet significant, for most of the variables discussed. While our estimate of the impact of sanctions on GDP growth has large uncertainty, over two-thirds of the density lies in the negative area.

Measuring the Efficiency of Public Hospitals in Kuwait: A Two-Stage Data Envelopment Analysis and a Qualitative Survey Study

The recent drop in oil prices has challenged public sector financing in Kuwait. Technical and scale efficiency scores for fifteen public hospitals in Kuwait from 2010 to 2014 were estimated using a two-stage data envelopment analysis (DEA). Technical efficiency scores were regressed against institutional characteristics using Tobit regression to investigate the determinants of efficiency differences in hospitals. Semi-structured interviews were also carried out with fourteen public and private hospital managers to qualitatively explore their perceptions and experience about about factors affecting hospital efficiency. The mean technical efficiency score for all hospitals was 85.8%, an improvement of 2% since 2010. The mean pure technical efficiency score was 79.6%, improving from 75% in 2010 to 81.2% in 2014. The mean scale efficiency score was 91.8%, improving from 87.6% in 2010 to 94.2% in 2014. Only three hospitals were constantly technically and scale efficient. Tobit regression showed that hospital efficiency was significantly associated with the average length of patient stay. Hospitals with more than 400 beds were potentially more technically and scale efficient. The qualitative study revealed that external factors affecting efficiency commonly included implementation of legislative changes and decreasing bureaucracy, while internal factors included increasing bed capacity and improving qualifications and training of human resources. Most public hospitals in Kuwait were not technically and scale efficient, but improvements were observed. Potential factors that affected the efficiency of hospitals in Kuwait were identified. These findings are useful to decision-makers in Kuwait for developing strategies to improve public hospital efficiency.

Trade interdependence between Russia vs. the European Union and China within the context of the competitiveness of the Russian economy

Research background: The position of a country in the international division of labour is determined by the competitiveness of its trade, the structure of which may both reveal and perpetuate the comparative advantages possessed. This is particularly true for Dutch disease economies such as Russia. Recently, economic literature has seen a growing interest in the topic of Russia?s economic relations with the European Union and China. This article is aimed at being the Author?s contribution to this discussion.
 Purposes of the article: (1) to discuss the existing trade interdependence between Russia and the EU28, and Russia and China; (2) to try to assess the extent to which the current structure of Russian trade with these two partners corresponds with the competitiveness of the Russian economy.
 Methods: An in-depth analysis of Russia-EU28 and Russia-China trade interdependencies in 2007-2015 has been conducted, with emphasis on the categories of goods within the spectrum from low- to high-technology, according to the OECD classification. Furthermore, in order to analyse Russia?s competitive profile with regard to the same categories of goods, Balassa?s methodology of revealed comparative advantages has been applied.
 Findings & Value added: In the recent years, a growing importance of China in Russian trade turnover can be observed, being the effect of dynamic growth of Chinese economy, cooling political relations between Moscow and Brussels and the drop in oil prices in international markets. The existing structure of Russian trade with the EU28 and China seems likely to preserve its traditional competitive advantages in the medium-low-technology goods and oil, which, in turn, will only further exacerbate the negative consequences of the so-called Dutch disease affecting the Russian economy.

Economic Growth of Saudi Arabia Between Present and Future According to 2030 Vision

Saudi Arabia follows a development strategy depending on many factors generating income, such as increasing non-oil investments, production and manufacturing for exports. Investing contributes mainly to diversify sources of income and generate more jobs where it is expected that the contribution of the private sector will enhance productivity in all sectors. These increased business productivities will increase the percentage annual growth rate to 5.2% in addition to increasing the added value of the oil sector.
 
 Saudi Arabia implemented a lot of policies to be out of the oil control on their economies and this is taken up in the previous papers of growth factors in Saudi Arabia until 2014. But due to the need of less dependence on oil revenues and the need to diversify sources of income, especially in the period following the drop-in oil prices, it’s necessary to create added value to the economy of Saudi Arabia, through an econometric model that illustrates oil alternatives income. This paper is based on the analysis of different growth factors after exclusion of oil revenues using the Weighted Least Square.

Spatiotemporal Assessment of Induced Seismicity in Oklahoma: Foreseeable Fewer Earthquakes for Sustainable Oil and Gas Extraction?

In this study we present a spatiotemporal analysis of the recent seismicity and industry-related wastewater injection activity in Oklahoma. A parsimonious predictive tool was developed to estimate the lagged effect of previous month’s injection volumes on subsequent regional seismic activity. Results support the hypothesis that the recent boom in unconventional oil and gas production and either the mitigation policies or the drop in oil prices (or both) are potentially responsible for the upsurge and reduction in the state’s seismic activity between 2006–2015 and 2016–2017, respectively. A cluster analysis reveals a synchronous migration pattern between earthquake occurrences and salt water injection with a predominant northwest direction during 2006 through 2017. A lagged cross-correlation analysis allows extracting a power law between expected number of quakes and weighted average monthly injection volumes with a coefficient of determination of R2 = 0.77. Such a relation could be used to establish “sustainable water injection limits” aiming to minimize seismicity to values comparable with several historically representative averages. Results from these analyses coincide on previously found sustainable limits of 5 to 6 million m3/month but expand to operations that could attain the same number through differential monthly planning. Findings could potentially be used for model intercomparison and regulation policies.

Nizozemska bolest u Bolivarijanskoj Republici Venezueli

Ever since its independence, Venezuela has based its economy on the manufacturing and export of a single product. In the 19th century, those products were cocoa and coffee beans, which were replaced by oil in the 20th century. This led to the Dutch disease which harmed other sectors of the economy, so the often corrupt governments bought social peace with socialist policies and government spending. During the 1980s, the first significant plunge in oil prices in the 20th century forced the Venezuelan government to conduct liberal reforms in order to receive assistance from the International Monetary Fund. These led to a significant decline in the standard of living and GDP, as well as, mass protests. Due to the popular discontent, the 1998 presidential elections were won by Hugo Chavez, a former military officer and the leader of the failed coup, who used the rebound in oil prices to start socialist reforms and economic recovery. Expropriations of privately owned assets and price controls weakened the domestic economy and led to inflation, while the rise in government spending strained the public finances. The big drop in oil price in 2014 caused the collapse of Venezuelan economy as well as social and political crisis. The data used in making this paper is from the Venezuelan government and its departments and institutes, as well as from the United Nations, the World Bank, other organisations and Venezuelan and foreign newspapers and web portals.

Assessing the impact of economic and demographic change on property crime rates in Western Canada

Western provinces have experienced tremendous change over the last few decades, with oil booms and busts, with large international and interprovincial movement of workers and families, and with rising and declining property crime rates. What are the links between these economic, demographic, and crime rate changes? I investigate these links for Western Canada over the period from 1968 to 2015. Empirical results suggest that increases in household incomes and alcohol sales per capita, and decreases in unemployment rates, all signs of improved economic prosperity, coincided with decreases in rates of property crime. Increases in migration turnover (both inward and outward migration) put upward pressure on rates of property crime. In addition, changes in police reporting methods and categorization have had dramatic effects on official rates of property crime: the change from UCR1 to UCR2 reporting methodology caused rates of property crime to rise by between 18 per cent and 30 per cent in 1998, and changes in police reporting methods in 2003 caused property crime rates to rise again, by between 5 per cent and 16 per cent in 2003, for the western provinces. The recent rise in rates of property crime in the west is closely linked to the economic slowdown following the drop in oil and resource prices, and should migration turnover rates remain high as people move seeking better opportunities, property crime rates will remain high. Policymakers and criminal justice professionals may be advised and reminded of the effect of these economic and demographic changes, as well as the effect of reporting changes, on official rates property crime.

Revealing the nexus between oil and exchange rate in the major emerging markets—The timescale analysis

AbstractThis paper investigates the interrelationship between Brent oil price and exchange rate in 10 emerging markets of East Europe, Asia, Africa, and South America. For computational purpose, we apply two innovative methodologies—wavelet coherence and phase difference that are capable of observing different frequency scales. Wavelet coherence results suggest that strong coherence is present during world financial crisis (WFC) in the oil‐exporting countries and in majority of the oil‐importing countries. Phase arrows as well as phase difference suggest negative coherence between oil and exchange rates in the oil‐importing countries during WFC. Negative coherence is found in these countries because currency depreciation was accompanied by immense oil price drop in WFC period. In addition, phase difference has relatively stable in‐phase dynamics in long term in the oil‐importing countries during tranquil periods, which confirms theoretical stance that higher oil prices cause currency depreciation and vice versa. As for the oil‐exporting countries, we find constant and relatively long‐lasting anti‐phase pattern in Russian and Nigerian cases for long‐term horizons but not for Brazilian one.

The impact of oil price shocks on capital spending in the oil and gas industry

PurposeThe purpose of this paper is to examine the impact of oil price shocks on capital spending in relation to the following firm characteristics: firm size, debt ratio, growth prospects, earnings and key sectors of the oil and gas industry.Design/methodology/approachTo examine the impact of oil price changes on each of the sample firm’s capital spending, the authors utilize a vector autoregressive (VAR) framework which requires that the oil price and the firm’s capital spending series are stationary. The authors employ the Augmented Dickey–Fuller (ADF) procedure to test if these series are stationary in levels or in their first difference. Since the results show that the ADF values for adjusted oil price and for all but one capital spending series are stationary, the authors perform VAR analysis using the level data.FindingsThe impulse response results show that there is a positive relationship between oil price shocks and capital spending by the oil and gas firms. In other words, the oil and gas firms reduce (increase) capital spending when oil prices fall (rise). The responses are highest around q3. Additionally, the responses are stronger for the exploration and production, drilling, and oil services firms, and weaker for the refining firms (oil majors). Also, the small, low-earnings and low p/e firms exhibit the highest responses to oil price shocks. The impulse response results for the debt quartiles are inconclusive.Practical implicationsThe findings shed light into the impact of oil price shocks on capital spending in relation to firm characteristics. The impulse response results that capital spending of the E&P, drilling and oil services firms, and the small firms in general, have a higher positive impact of oil shocks lend support to the argument that these firms more likely reduce capital spending because of financial constraints in the capital markets. A higher positive response by the low return on assets firms indicates that firms with low earnings and cash flow problems are more likely to reduce their capital spending when oil price drops. With regard to growth prospects, it appears that shocks in oil price dampen the outlook for the low p/e firms, which leads to a cut in their capital spending. On the other hand, the high p/e firms seem to rely more on their growth prospects and downplay the adverse impact of oil price shocks.Originality/valueUnlike previous studies in this area, the study focuses on firm-level data in detail, uses quarterly data and uses firm-specific variables that explain impact of oil price shocks on capital spending in oil and gas industry.

Oil price movements, exchange rate and Nigerian manufacturing sector growth: a short-run analysis

The paper conducts a short-run analysis of the implications of oil price movements and exchange rate relationship for the Nigerian manufacturing sector growth between January 2008 and September 2017. Monthly data are extracted on variables such as oil price, exchange rate, inflation rate, interest (lending) rate, money supply and the manufacturing sector growth rate. Oil price movements are viewed in terms of both volatility and change. While EGARCH is used to estimate oil price volatility, oil price change is measured using Hamilton index for both oil price sharp drop and jump. The SVAR results indicate that exchange rate and inflation rate are more responsive to sharp drop in oil price. The two variables also have the highest impact on the manufacturing sector growth. Findings further indicate that Nigerian manufacturing sector is more affected at the cost side than the output side. This underscores the importance of tackling the inflation pressure in Nigeria from the structural perspective as against the monetary perspective.

Dependency network of international oil trade before and after oil price drop

An unexpected price drop beginning in 2014 has resulted in significant changes in the global crude oil market. This paper investigates the dependency network of the international oil trade and focuses on its changes after the oil price drop. Point-wise mutual information is used to quantify oil trade dependencies, and complex network methods are applied to analyze dependencies at both the country and world levels. The results show that the USA has constructed stable friendships with peripheral countries, and its dependency on traditional oil-producing areas in the Middle East and Africa has decreased significantly. The dependency between Russia and its major partners has undergone a U-curve; it decreased significantly from 2014 to the first half of 2016 and then recovered in late 2016 and 2017. India and its major import sources maintained a stable high dependency during the research period. Community analysis of the dependency network shows structural differences between 2014 and 2017. Large countries such as the USA and Russia changed their community after 2014. The results show that the global oil trade relationships changed considerably after 2014. The new features of dependency and its implications should be considered by policy makers and company managers.

Bank-Specific and Macroeconomic Determinants of Bank Profitability: Evidence from an Oil-Dependent Economy

This study investigated bank-specific and macroeconomic determinants of bank profitability in Azerbaijan, an oil-dependent economy in transition. A huge drop in oil prices, a significant devaluation of the national currency, and the financial distress were the main motivations of the study. We applied Panel Generalized Method of Moments to the data in the framework of dynamic model of the bank profitability. It was found that bank size, capital, and loans, as well as economic cycle, inflation expectation, and oil prices were positively related to the profitability, whereas deposits, liquidity risk, and exchange rate devaluation were negatively associated with it. We further found that the bank profitability demonstrated moderate persistence and ignoring the country-specific features could lead to bias and poor performance in estimations. The conclusions of this research would aid in setting banking policies towards increasing profitability. This may be supplemented by ensuring strong research departments within the banks tasked with analyzing and forecasting the main macroeconomic indicators. The novel features of the study include utilizing recent economic trends, accounting for country-specific features, and for the first time, examining the effects of the economic cycle on the bank profitability in Azerbaijan. In addition, the study featured proper addressing time series properties of the panel data, and performances of robustness checks for consistency of results.

Oklahoma earthquakes and the price of oil

The process of hydraulic fracturing has unlocked an unprecedented amount of oil and gas in the United States. Hydrocarbons are not the only output from this process, though, as billions of barrels of “produced” water are extracted and subsequently pumped back underground. This process of injecting produced water into disposal wells has been causally linked to the rise in earthquakes. Here I show how the amount of earthquakes in Oklahoma are positively linked to the price of oil, and further find that the decrease in earthquake activity in Oklahoma is due to both the drop in oil prices and the regulatory directives of regional authorities. The estimated impact of the various shut-in policies have been small compared to the reduction in earthquakes due to the broad price decline, though. I find that the drop in oil prices that began in mid-2014 led to as large of a reduction in earthquakes as the combined effect of new policies that started in March of 2015.