The U.S Shale Oil Boom: The Impact of U.S. Supply Shocks on the Global Oil Price

Abstract

We examine the role of the U.S. shale oil boom in driving global oil prices. We give a brief discussion of the recent developments in the oil markets, paying special attention to the U.S. shale oil boom. We estimate a series of SVAR models which identify supply-related shocks from the U.S. and use a constructed U.S. imports variable which only reflects the state of domestic supply. Our results suggest that the U.S. has indeed exerted considerable negative pressure on the price. More specifically, we find that the U.S. explains up to 15.54% of its variation, considerably more than what has been found in other studies. However, this pressure on prices did not manifest itself until 2015. This delay implies a temporary friction in the transmission of U.S. supply shocks which we theorise is caused by incompatible processing facilities in the downstream supply chain.