Shale Oil Revolution Research Articles

Oil price shocks and credit spread: Structural effect and dynamic spillover

This study analyzes the heterogeneous response of U.S. credit spread to global oil price shocks by building an extended structural vector autoregressive model (SVAR), which can distinguish among the U.S. and non-US oil supply shocks, aggregated demand shocks and oil market-specific demand shocks behind the real oil prices. Meanwhile, a spillover index model developed by Diebold and Yilmaz (2012) (hereafter D.Y. (2012)) is used to estimate the link between oil price shocks and the U.S. credit spread over time. The results show that (i) the credit spread does not respond to global oil supply shocks and non-US oil supply shocks, but has a negative reaction to the U.S. oil supply shocks, aggregate demand shocks, and oil-market-specific demand shocks. (ii) There exists a close connectedness between oil price shocks and the U.S. credit spread, and the link fluctuates cyclically and relates to the economic cycle and the U.S. shale oil revolution. (iii) The spillover from different oil price shocks to the U.S. credit spread shows significant heterogeneity over time. Our findings suggest that policymakers and investors can better track the U.S. credit spread changes using oil price information.

A Markov-switching dynamic regression analysis of the asymmetries related to the determinants of US crude oil production between 1982 and 2019

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.

Investment Opportunities, Market Feedback, and Voluntary Disclosure: Evidence from the Shale Oil Revolution

Recent theories posit that investment opportunities encourage managers to provide voluntary disclosures to elicit informational feedback from stock prices to improve investment decisions, even as doing so encourages informed trading and worsens adverse selection among investors. We test this prediction in a difference-in-differences framework using the shale oil revolution in the early 2010s as an exogenous shock to investment opportunities for oil and gas (“O&G”) firms. During this period, we find that O&G firms increased capex forecasts and decreased earnings forecasts relative to similar, capital-intensive firms outside of the O&G industry and that these effects are concentrated among O&G firms with more informed trading and relatively poorer managerial information. We also find that O&G firms that adjusted their earnings and capex forecasts display both an increase in investment-q sensitivity and a decrease in stock liquidity during the shale oil revolution. Taken together, these results suggest that managers adjust their portfolio of voluntary disclosures to facilitate managerial learning from stock prices in response to investment opportunities, despite worsening adverse selection costs in the process.

Indra Overland and Nina Poussenka. Russian oil companies in an evolving world: the challenge of change

This book is a geopolitical examination of five Russian oil companies ability for change given social, political and environmental contexts. Specific attention is given to how these five companies have evolved over time, their transparency or lack thereof, and how they have handled the energy transitions of shale oil revolution, offshore oil and energy markets. On the surface this book appears to be an energy policy and business management book, but energy companies around the world are major drivers impacting climate, energy consumption as well as geopolitics (Considine and Paik 2018; Katusa 2014; Yergin 2009, 2012). This is particularly true for Russia (Gustafson 2017; Rossbach 2018) and the US (Katusa 2014).

Time and Frequency Connectedness Among Oil Shocks, Electricity and Clean Energy Markets

This paper examines the time and frequency dynamics of connectedness between oil price shocks (demand and supply), and energy, electricity, carbon and clean energy markets using the methodology developed by Diebold and Yilmaz (2012) and Barunik and Krehlik (2018). The empirical findings show that there is time-varying connectedness among all variables in the sample. We find increased connectedness during the global financial crisis as well as in the shale oil revolution period. The total connectedness is more significant and higher in the short-term compared to the long-term. Net pairwise directional connectedness become more important during the shale oil revolution among oil supply, oil demand and clean energy index. The findings of the static full sample and sub-samples (GFC and SOR) provide significant evidence of the electricity futures as diversifier and safe-haven asset for oil shocks. These results can have important implications for investors and policymakers with different time horizons.

The time-varying causal relationship between oil price and unemployment: Evidence from the U.S. and China (EGY 118745)

This study detects the relationship between the crude oil price (COP) and unemployment rate (UR) to explore whether the efficiency-wage model is consistent for the United States (U.S.) and China. It is unstable to use full-sample data in the long-run nexus with the consideration of structural changes, implying that causality is unreliable. Instead, the dynamic causal relationship is examined by a time-varying rolling-window method. In certain sub-periods, the existence of time-varying positive bidirectional causality between the COP and UR is illustrated by the empirical findings, supporting the efficiency-wage model indicating that these two variables can interact through supply, demand and inflation channels. For the U.S., deviations between the COP and UR can be explained by geopolitical events, monetary policy, financial crises and the shale oil revolution. In addition, the end of double-digit economic growth, financial crises and high oil demand lead to fluctuations in China for certain sub-periods. Hence, for the government, these empirical findings have significant implications for identifying factors that bring about the causal link between the COP and UR and moreover lead to policy suggestions for U.S. and China.

Time and frequency connectedness among oil shocks, electricity and clean energy markets

Abstract This paper examines the time and frequency connectedness among electricity, carbon and clean energy markets, and oil price demand and supply shocks. In doing so, we use the spillover method proposed by Diebold and Yilmaz (2012) and its extension in the frequency domain by Barunik and Křehlik (2018) . We find increased connectedness during the global financial crisis as well as in the shale oil revolution period. The total connectedness is also higher in the short-run compared to the long-run. Due to their low connectedness, electricity futures can act as a risk diversifier and safe-haven asset against oil shocks. Net pairwise directional connectedness among oil shocks and the clean energy index is higher during the shale oil revolution. These results have important implications for investors with different investment time horizons.

Notes from the Editors, June 2020

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 The current massive oil glut is the product of the effects of the tight oil or shale oil revolution, which for a time turned the United States into the biggest oil and gas producer in the world. Now, suddenly as a result of an overproduction of world oil, made far worse by the sudden falloff in demand due to the COVID-19 pandemic, we are witnessing the possible euthanasia of the U.S. tight oil industry, bleeding cash even before the oil price collapse and encumbered with mountains of debt.

DID THE US SHALE OIL REVOLUTION RUIN OIL INDUSTRY STOCK MARKET RETURNS?

The stock market performance of the US oil industry is evaluated against a combination of benchmarks before and after the US shale oil revolution, in order to ascertain whether the increase in US shale oil production had an adverse impact on oil industry stock market returns. In 2014, the dynamic of the global crude oil supply-demand situation was such that the oil price fell because of the increased US crude oil production. Saudi Arabia and the other major producers preferred to have low oil prices, at least temporarily, in order to penalize the US shale oil players. Any oil price increase since then is seen as leading to an increase in US crude oil supply which then further reduces oil prices. The oil industry outperformed the benchmarks prior to the ramp up of US crude oil production led by the shale oil revolution, but the industry underperformed the benchmarks after these production increases. Hence, the US shale oil revolution did ruin the oil industry stock market returns. Several topics for discussion are included: The US Shale Oil Revolution; World Crude Oil Markets; Crude Oil Price Dynamics in the US; and Crude Oil Price Impacts on Oil Companies. Keywords: Shale Oil Revolution, Crude Oil Price, Oil and Gas Industry, Stock Market Returns JEL Classifications: Q32, Q41, Q43 DOI: https://doi.org/10.32479/ijeep.9171

Types and resource potential of continental shale oil in China and its boundary with tight oil

Continental shale oil has two types, low-medium maturity and medium-high maturity, and they are different in terms of resource environment, potential, production methods and technologies, and industrial evaluation criteria. In addition, continental shale oil is different from the shale oil and tight oil in the United States. Scientific definition of connotations of these resource types is of great significance for promoting the exploration of continental shale oil from “outside source” into “inside source” and making it a strategic replacement resource in the future. The connotations of low-medium maturity and medium-high maturity continental shale oils are made clear in this study. The former refers to the liquid hydrocarbons and multiple organic matter buried in the continental organic-rich shale strata with a burial depth deeper than 300 m and a Ro value less than 1.0%. The latter refers to the liquid hydrocarbons present in organic-rich shale intervals with a burial depth that in the “liquid window” range of the Tissot model and a Ro value greater than 1.0%. The geological characteristics, resource potential and economic evaluation criteria of different types of continental shale oil are systematically summarized. According to evaluation, the recoverable resources of in-situ conversion technology for shale oil with low-medium maturity in China is about (700–900)×108 t, and the economic recoverable resources under medium oil price condition ($ 60–65/bbl) is (150–200)×108 t. Shale oil with low-medium maturity guarantees the occurrence of the continental shale oil revolution. Pilot target areas should be optimized and core technical equipment should be developed according to the key parameters such as the cumulative production scale of well groups, the production scale, the preservation conditions, and the economics of exploitation. The geological resources of medium-high maturity shale oil are about 100×108 t, and the recoverable resources can to be determined after the daily production and cumulative production of a single well reach the economic threshold. Continental shale oil and tight oil are different in lithological combinations, facies distribution, and productivity evaluation criteria. The two can be independently distinguished and coexist according to different resource types. The determination of China's continental shale oil types, resources potentials, and tight oil boundary systems can provide a reference for the upcoming shale oil exploration and development practices and help the development of China's continental shale oil.

Energy commodity uncertainties and the systematic risk of US industries

We investigate the impact of energy commodity uncertainties on the systematic risk of twelve industries in the US. The dynamic betas using the dynamic conditional correlation – generalized auto-regressive conditional heterosckedasticity (DCC-GARCH) model, indicate that real estate, financials, and basic materials are the high-risk industries. Notably, the systematic risk of oil and gas sector was significantly affected during the Global Financial Crisis (GFC) and the Shale Oil Revolution (SOR) sub-periods. Our results provide convincing evidence of the positive impact of energy uncertainties on basic material, basic resources, financials, oil and gas, and real estate. On the other hand, we identify the negative impact on consumer goods, consumer services, health care, industrials, and technology industries. These findings have implications for investment and risk management.

The U.S. crude oil refining industry: Recent developments, upcoming challenges and prospects for exports

In 2018 the U.S. petroleum refining industry is the largest and most advanced in the world. Continuous consolidations and investments in complex refinery additions have allowed this industry to remain competitive and the shale oil revolution has contributed to the U.S. becoming a net exporter of refined petroleum products in 2008. In light of current and forecasted changes in refined petroleum product demand and worldwide refining capacity additions, the U.S. petroleum refining industry faces new challenges. This paper provides an in-depth study of this industry, presenting past trends, its current state and the effects that a changing U.S. crude oil production has on refiners. Furthermore, a scenario analysis is used to forecast future production levels and the volumes of major refined products available for exports over the years 2017–2032. The competitiveness of current U.S. gasoline and diesel exports is evaluated and forecasted gasoline and diesel demand in current export markets is compared to available export volumes. Major challenges facing refiners by changing market conditions and new regulatory rules are discussed. Finally, a set of recommendations is provided.

Oil prices and the U.S. economy: Evidence from the stock market

Using three identification strategies, this paper finds that supply-driven oil price increases lowered U.S. stock returns in many sectors before the shale oil revolution but not after. It also reports that oil prices are a priced factor in a multi-factor asset pricing model both before and after the shale revolution. While oil prices mattered in both periods, the beneficial effects of oil price increases on the U.S. stock market have risen and the harmful effects have fallen since U.S. oil production soared after 2010.

Much Ado About Nothing? The Shale Oil Revolution and the Global Supply Curve

Much Ado About Nothing? The Shale Oil Revolution and the Global Supply Curve

Limits of Technological Efficiency of Shale Oil Production in the USA

The shale oil revolution in the United States had an irreversible impact upon the global oil market and was a key factor determining oil price reduction in 2014-2016. One of the main reasons for the rapid growth of the shale oil production in the US was the development of extracting technologies, which reduced the cost of production to an acceptable level. This article studies the problems of long-term forecasting in shale oil production and the productivity of drilling rigs. This research applies the fitting of an asymmetric bell-shaped function using an OLS approach. This function is derived as an analytical solution of the differential equation for oil production.Another innovation of this study is the asymmetric function, which correlates better with data on the extraction of traditional and non-traditional oil resources. An analysis of the empirical data with the derived asymmetrical bell-shaped curve shows that the productivity of drilling rigs will peak by 2026 at 1,200 bbl per day, which is 2 times higher than the current level. The peak of production would correspond to the maximum oil production of 11.3 mln bbl per day and to technically recoverable resources of 96 bln bbl. This could mean that starting from 2023, the volume of shale oil production in the US may not be enough to meet the growing global demand for oil and other resources with even higher production costs should be developed. The theoretically grounded and practically tested asymmetrical bell-shaped curve can serve as one of the tools for assessing the long-term impact of technological innovation and the growth of equipment productivity upon the development of oil production in the US in the course of Foresight studies.

Managing Basin‐Scale Fluid Budgets to Reduce Injection‐Induced Seismicity from the Recent U.S. Shale Oil Revolution

Managing Basin‐Scale Fluid Budgets to Reduce Injection‐Induced Seismicity from the Recent U.S. Shale Oil Revolution

The U.S. Shale Oil Revolution and the Behavior of Commodity Prices

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.

Geologic significance and optimization technique of sweet spots in unconventional shale systems

Crude oil in unconventional shale systems, present as tight oil and shale oil, accumulates inside an oil kitchen in formations with coexistent sources and reservoirs. Organic matter present in oil shale is not yet mature and requires heating to convert it into crude oil. Oil exploration in shale systems involves the exploration of shale oil retained in source rocks and tight oil rich zones located near source rocks. Tight oil is a type of realistic unconventional oil resources in China. The marked increase in potential shale oil reserves, and exploration of these reserves, will result in a shale oil revolution similar to that experienced for shale gas. Based on a systematic comparison of geologic features of shale systems in the US and China, the geologic significance of the sweet spots in shale systems is proposed. This zone contains an abundance of unconventional oil in shale systems that can be explored and developed under current economic and technical conditions. The sweet spot zone refers to the zone in the tight oil rich zone which has industrial value within the scope of matured high-quality source rocks on the plane. The sweet spot interval refers to the high-productivity interval of tight oil which has industrial value through artificial stimulation. The main aim of oil exploration in shale formations is to identify the sweet spots. The distribution of the economic sweet spots in shale systems is evaluated by overlapping the geologic, engineering and economic sweet spots. Resource assessment techniques, the identification of logging data properties, high-resolution 3D seismic surveys, horizontal well production from well pads, and artificial reservoir development of sweet spots in oil-bearing shale formations can assist efficient development of oil. Globally, shale formations contain a significant volume of oil reserves. Currently, stimulated reservoir volume (SRV) techniques in horizontal wells in marine shale gas formations in the United States have average peak-productivity cycles of 10–15 years. To achieve commecial oil production in lacustrine shale systems in China, it is important to utilize large formation thicknesses and the high abundance of organic matter. In addition, the development of practical and economic techniques will result in an increase of productivity of tight oil and shale oil by 30–50 million tons, as well as the economic development of oil in lacustrine shale systems in China.

The Saudi 2014 gambit: a counterfactual analysis

The November 2014 Saudi gambit to increase oil production and drive down prices was a deliberate decision to quell the shale oil revolution. Ostensibly, that decision has been very costly to the Saudis, but the relevant question is would they find themselves worse off had they not acted. This paper presents a counterfactual analysis of that decision and finds that to have continued to cut production to sustain high prices would have been worse yet. Consequently, because of the shale revolution, future oil prices appear likely to fluctuate between a new floor and new ceiling price. A critical question then becomes what role will OPEC play in affecting prices within this new range of variation. This paper presents two contrasting views.

OPEC, Saudi Arabia, and the shale revolution: Insights from equilibrium modelling and oil politics

Why did OPEC not cut oil production in the wake of 2014's price fall? This study aims at aiding the mostly qualitative discussion with quantitative evidence from computing quarterly partial market equilibria Q4 2011 – Q4 2015 under present short-term profit maximisation and different competition setups. Although the model performs reasonably well in explaining pre-2014 prices, all setups fail to capture low prices, which fall even beyond perfect competition outcomes. This result is robust with respect to large variations in cost parameters. Rejecting present short-term profit maximisation, as well as a qualitative discussion of Saudi Arabian politics and the shale oil revolution, lead to the conclusion that the price drop of 2014-16 was most plausibly the result of an attempt to defend market shares and to test for shale oil resilience, besides being fuelled by other factors such as rising competitiveness of alternative technologies. Although shale oil might have increased competition permanently (as supported by model results), the agreement of December 2016 should not be misunderstood as an OPEC defeat.