The Relationship Between Oil Price and Costs

Alexander Naumov
Authors registered in the RePEc Author Service: Gerhard Toews

No 152, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford

Abstract: We propose a simple structural model of the upstream sector in the oil industry to study the determinants of costs with a focus on its relationship with the price of oil. We use the real oil price, data on global drilling activity and costs of drilling to estimate a three-dimensional VAR model. We use short run restrictions to decompose the variation in the data into three structural shocks. We estimate the dynamic effects of these shocks on drilling activity, costs of drilling and the real price of oil. Our main results suggest that (i) a 10% increase (decrease) in the oil price increases (decreases) global drilling activity by 4% and costs of drilling by 2% with a lag of 4 and 6 quarters respectively; (ii) positive shocks to drilling activity affect the oil price negatively; (iii) shocks to costs of drilling do not have a permanent effect on the price of oil.

Keywords: Natural Resource Extraction; Crude Oil Price; Upstream Cost (search for similar items in EconPapers)
JEL-codes: Q31 (search for similar items in EconPapers)
Date: 2015-01-07
New Economics Papers: this item is included in nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:335aaad6-68c7-4f11-966a-99b5f21fd4d1 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oxf:oxcrwp:152

Access Statistics for this paper

More papers in OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford Contact information at EDIRC.
Bibliographic data for series maintained by Melis Boya ( this e-mail address is bad, please contact ).