How much impact did the growth in U.S. shale production have on the oil market?
A lot, according to a new research paper from the Federal Reserve Bank of Dallas and authored by Nathan S. Balke, Southern Methodist University & Federal Reserve Bank of Dallas; Xin Jin, University of Aberdeen and Mine Yücel, Federal Reserve Bank of Dallas.
In the abstract to the paper, the authors say that oil prices in 2018 would have been about 36% higher had shale-produced crude oil not entered the market. [T]he shale revolution implies a reduction in current oil price volatility around 25% and a decline in long-run volatility of over 50%,” they said.
“U.S. oil production, which had been declining since 1970, has risen 7.7 million barrels per day (mb/d), more than doubling from 2007 to 2020,” acordoing to the paper. “This dramatic increase in shale production seen thus far is likely to be only a precursor of future shale production as improvements in shale production techniques continue and the diffusion of these techniques spreads worldwide.”
Despite the current pain in the oil patch, particularly in the Permian Basin, the paper says that shale producers “appear to be more flexible than conventional producers in their responsiveness to price changes.”
Shale oil, the paper notes, had less than 1% of the oil market in 2005, but 13 years later had 10 percent of the global oil market.
To read the paper:
https://www.dallasfed.org/~/media/documents/research/papers/2020/wp2021.pdf
The Federal Reserve of Dallas also released two other papers.
- No. 2020
Quantitative Easing and Financial Risk Taking: Evidence from Agency Mortgage REITs
By W. Scott Frame and Eva Steiner - No. 2022
Joint Bayesian Inference about Impulse Responses in VAR Models
By Atsushi Inoue and Lutz Kilian