Working Paper: NBER ID: w23818
Authors: Nida Akir Melek; Michael Plante; Mine K. Yucel
Abstract: This paper examines the effects of the U.S. shale oil boom in a two-country DSGE model where countries produce crude oil, refined oil products, and a non-oil good. The model incorporates different types of crude oil that are imperfect substitutes for each other as inputs into the refining sector. The model is calibrated to match oil market and macroeconomic data for the U.S. and the rest of the world (ROW). We investigate the implications of a significant increase in U.S. light crude oil production similar to the shale oil boom. Consistent with the data, our model predicts that light oil prices decline, U.S. imports of light oil fall dramatically, and light oil crowds out the use of medium crude by U.S. refiners. In addition, fuel prices fall and U.S. GDP rises. We then use our model to examine the potential implications of the former U.S. crude oil export ban. The model predicts that the ban was a binding constraint in 2013 through 2015. We find that the distortions introduced by the policy are greatest in the refining sector. Light oil prices become artificially low in the U.S., and U.S. refineries produce inefficiently high amount of refined products, but the impact on refined product prices and GDP are negligible.
Keywords: US shale oil boom; oil export ban; general equilibrium analysis; light crude oil production; refining sector
JEL Codes: F41; Q38; Q43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US shale oil boom (L71) | increase in light crude oil production (L71) |
| increase in light crude oil production (L71) | decrease in light oil prices (Q31) |
| increase in light crude oil production (L71) | decrease in fuel prices (Q31) |
| increase in light crude oil production (L71) | increase in US GDP (E20) |
| export ban (F10) | artificially low light oil prices in the US (L71) |
| export ban (F10) | inefficiently high amount of refined products (L71) |
| US shale oil boom (L71) | distortions in the refining sector (L71) |
| export ban (F10) | negligible impact on refined product prices and GDP (F69) |