The U.S. Shale Oil Boom, the Oil Export Ban and the Economy: A General Equilibrium Analysis
We examine the effects of the U.S. shale oil boom in a two-country dynamic stochastic general equilibrium (DSGE) model in which 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 and is calibrated to match oil market and macroeconomic data for the United States and the rest of the world. We investigate the effects 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, the model suggests that fuel prices fall and U.S. gross domestic product rises. We then use our model to examine the potential effects of the former U.S. crude oil export ban. The model shows the ban was a binding constraint from 2013 through 2015. We find that the distortions the ban introduced are greatest in the refining sector. In our model, U.S. light oil prices become artificially low, and U.S. refineries produce an inefficiently high amount of refined products. Nevertheless, the effects on refined product prices and GDP are negligible.
Download paper, RWP 17-10, September 2017
JEL Classification: F41, Q43, Q38
- Çakır Melek, Nida, Michael Plante, and Mine K. Yücel. 2017. “The U.S. Shale Oil Boom, the Oil Export Ban and the Economy: A General Equilibrium Analysis.” Federal Reserve Bank of Kansas City, Research Working Paper 17-10, September. Available at https://doi.org/10.18651/RWP2017-10