In November 2016, OPEC decided to curtail oil production in an effort to reduce the global oil glut. The result was a small price increase which in turn provided the incentive to US shale oil producers to increase production. Arezki and Matsumoto, in this article, evaluate how this tug of war between OPEC and US shale oil producers will affect the balance between oil supply and demand going forward.
OPEC’s Rebalancing act
By: Rabah Arezki, Akito Matsumoto – IMFKilian argues that US shale oil has changed the way oil shocks are being trasmitted not only in the US but also in the global economy.
Global repercussions of the US tight oil boom
By: Lutz Kilian – University of Michigan
Some characteristics of the oil market have remained the same
Interestingly, Matsumoto and al.’s analysis shows that, notwithstanding the fact that shale oil production today is more responsive to prices than conventional oil, an era of prolonged low oil prices and investment is likely to be followed by a period where oil prices overshoot their long-term upward trend.
Oil Prices and the Global Economy
Authors: Akito Matsumoto, Armen Nurbekyan, Douglas Laxton, Hou Wang, Jiaxiong Yao, Rabah Arezki, Zoltan Jakab
From: IMF
Equity and oil markets
Data and al. find that since 2008 oil and equity returns have become more correlated and more responsive to macroeconomic news than in the past. They attribute this change to the fact that nominal interest rates during that period have been constrained by the the zero lower bound.
Oil, Equities, and the Zero Lower Bound
Authors: Deepa Datta, Benjamin K. Johannsen, Hannah Kwon, and Robert J. Vigfusson
From: BIS
As a matter of fact, Nguyen and al. show that the fall in oil prices during 2014 – 2016 adversely affected the US stock market. They argue that oil price declines increased uncertainty and hurt risky assets such as stocks while boosting the price of safe assets such as long-term Treasury bonds.
Impact of Oil Price Fluctuations on Financial Markets Since 2014
Authors: Ha Nguyen, Huong Nguyen, Anh Pham
From: The World Bank – Tufts University – George Mason University
Gulf oil producers have changed too
Gulf countries in order to cope with the decrease in oil prices during the 2014 – 2016 period, issued, for the first time, sovereign debt in record magnitudes. They are betting, of course, that oil prices will recover soon. Reinhart argues that if prices don’t recover this surge in dollar-denominated debt will backfire, .
How to Handle an Oil Shock
By: Carmen Reinhart – Harvard University
