The Sensitivity of Oil Price Shocks to Preexisting Market Conditions: A GVAR Analysis

  • Initiative -
  • Type KAPSARC journal article
  • Date 11 November 2021
Print

Abstract

This study develops a Global Vector Autoregression (GVAR) model to simulate various types of shocks to oil markets and to see whether such shocks are time-sensitive in oil markets. Our model extends the canonical Mohaddes and Pesaran (2016) model temporally (to 2018Q3), spatially (including Russia, Iran, and Venezuela), and by adding oil inventories as an additional country-specific variable. Two of its characteristics make GVAR particularly suited to this analysis. First, the GVAR framework is specifically designed to account for the interaction between many countries. Second, world oil supplies and inventories are modeled jointly with key global and country-level macroeconomic variables. The results indicate conditions existing in the markets prior to the disturbance determine the global economic implications of an oil price shock. To cite only one example, a negative price shock in markets characterized by loose inventories will have significant negative implications for real GDP in the consuming nations, specifically Europe Latin America, and the Asia Pacific. In tight markets, on the other hand a negative price shock has the potential to increase real GDP for the world as a whole.

https://doi.org/10.1016/j.jcomm.2021.100225

Science Direct

Authors

Jennifer Considine

Jennifer Considine

Visiting Researcher Dr. Considine is a KAPSARC visiting researcher and a senior research fellow at the Centre for Energy, Petroleum and Mineral… Dr. Considine is a KAPSARC visiting researcher and a senior research fellow at the Centre for Energy, Petroleum and Mineral Law and Policy (CEPMLP) in Dundee, Scotland.  Previously, she led a number of projects involving options pricing, real options valuations of physical assets including electricity generation facilities, storage companies, and natural gas pipelines and contracts, risk management and hedging techniques, and trading strategies for a variety of commodities including natural gas, electricity and crude oil. Dr. Considine has worked with a number of international energy companies including Ecopetrol, TransCanada Pipelines, Westcoast Energy, Coastal Corporation, Duke Energy, and ANR Pipeline Company. She is currently chief editor of Energy Politics, an energy newsletter dealing with commercial strategies and strategic planning in the global energy industry.  Dr. Considine is a former member of the Board of Directors for Canada Post, and founding member of a number of initiatives to promote Scottish-Canadian relations including the Canadian Friends of Scotland.

Expertise

  • World oil and inventories
  • Commodity trading and technology
  • Russian oil industry
  • Econometrics options pricing
  • Commercial strategies.

Publications See all Jennifer Considine’s publications

Emre Hatipoglu

Emre Hatipoglu

Research Fellow Emre Hatipoglu is a fellow in the Oil and Gas program and leads the research project Energy Markets and Geopolitics.… Emre Hatipoglu is a fellow in the Oil and Gas program and leads the research project Energy Markets and Geopolitics. In this project, Dr. Hatipoglu and his colleagues assess how political events (e.g., international conflict, economic sanctions, international treaties) and global energy markets interact. Prior to KAPSARC, Dr. Hatipoglu was associate professor at the Faculty of Arts and Social Sciences at Sabanci University in Istanbul and a a visiting Fulbrighter during the 2017-2018 academic year at Columbia University. He also served on the advisory board of Sakip Sabanci Center for Turkish Studies at Columbia University between 2016-2018. Dr. Hatipoglu’s work has been published in various scientific journals, such as the Journal of Politics, Energy Research and Social Science, Energy Reports, Foreign Policy Analysis, the Journal of Commodity Markets, and Defence and Peace Economics, among others. He is the editor-in-chief of the journal Energy Transitions, and serves on the editorial board of the International Studies Review.      

Expertise

  • Geopolitics
  • Economic Sanctions and International Politics of Energy Trade

Publications See all Emre Hatipoglu’s publications

Abdullah Aldayel

Abdullah Aldayel

Research Associate Abdullah is a research associate in the Oil and Gas program, with a focus on oil markets and energy policies.…

Abdullah is a research associate in the Oil and Gas program, with a focus on oil markets and energy policies. He primarily works on the economic cost of shocks to world oil markets. His work has been published in several peer-reviewed journals.

Abdullah holds a B.S. degree in petroleum engineering from the King Fahd University of Petroleum and Minerals (KFUPM).

Expertise

  • Oil Market
  • Oil Inventories and Energy Policies

Publications See all Abdullah Aldayel’s publications

Share this Publication

Stay informed

I'm interested in

Select the updates you'd like to receive from us

About

A bit about you