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Shocks to supply and demand in the oil market, the equilibrium oil price, and country responses in economic indicators

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Abstract

We develop a model to forecast the equilibrium price in the oil market by balancing demand and supply at the level of interaction of the largest oil-consuming and -producing countries. Our model is based on the global vector autoregression methodology and allows us to make a medium-term forecast of the equilibrium oil price in dynamics analyzing the co-movement of oil demand and supply in various countries, in view of possible shocks from countries and companies. The proposed model allows us to reveal responses in economic indicators in various countries to changes in the equilibrium oil price. Our model covers 47 countries, including the member countries of the Organization of Petroleum Exporting Countries (OPEC), the Commonwealth of Independent States (CIS), and the largest oil-consuming countries. The majority of models analyze the only largest market players, but we consider the member countries of the CIS (Russia, Kazakhstan, and Azerbaijan) and OPEC member countries such as Iraq, the United Arab Emirates (UAE), Qatar, Venezuela, Algeria, Nigeria, and Angola. The test results on economic consequences of a shock to oil supplies from the largest producer (Saudi Arabia) and a shock to oil demand from the largest consumer (China) are of empirical interest.

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Notes

  1. Consumers and producers.

  2. We present assumptions that constrain the possibility of substantive interpretation of the modeling results. General assumptions (normal distribution of residuals, stationarity of time series, etc.) are not considered.

  3. Calculator for converting tons into barrels from CME Group, URL: http://www.cmegroup.com/tools-information/calc_crude.html.

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Authors and Affiliations

  1. Faculty of Economic Sciences, National Research University Higher School of Economics, 26, bld.4, room 4320, Shabolovka street, Moscow, 119049, Russia

    Tamara V. Teplova & Tatiana V. Sokolova

  2. Federal State Unitary Enterprise ‘Central Scientific Research Institute of Shipbuilding Industry ‘Center’, 11, bld.1, Sadovaya-Kudrinskaya street, Moscow, 123242, Russia

    Vladimir V. Lysenko

Authors
  1. Tamara V. Teplova
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  2. Vladimir V. Lysenko
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  3. Tatiana V. Sokolova
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Corresponding author

Correspondence to Tatiana V. Sokolova.

Appendix 1. Conditional forecast of GDP of Russia, the USA and Saudi Arabia in the scenario of oil supply reduction from Saudi Arabia

Appendix 1. Conditional forecast of GDP of Russia, the USA and Saudi Arabia in the scenario of oil supply reduction from Saudi Arabia

See Figs. 11, 12, 13.

Fig. 11
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Conditional forecast of Russia’s GDP, US dollars

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Fig. 12
figure 12

Conditional forecast of the US’ GDP, US dollars

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Fig. 13
figure 13

Conditional forecast of Saudi Arabia’s GDP, US dollars

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Teplova, T.V., Lysenko, V.V. & Sokolova, T.V. Shocks to supply and demand in the oil market, the equilibrium oil price, and country responses in economic indicators. Energy Syst 10, 843–869 (2019). https://doi.org/10.1007/s12667-018-0303-y

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  • DOI: https://doi.org/10.1007/s12667-018-0303-y

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