The real price of oil
has more than doubled since its low in early 2016, bringing with it a substantial increase in oil investment (Chart 1).
Figure 1 (Figure 2) reflects the responses of job creation (job destruction) to positive and negative oil price innovations of 1 SD using the Mork (1989) oil price increase measure as a nonlinear transformation for the real price of oil
. (7) Results based on the Hamilton (1996) net oil price increase measure are delineated in Appendix S1, Supporting Information.
We use the growth in the real price of oil
, [[DELTA].sub.ln]([p.sub.t]), the growth in the number of wells drilled, [DELTA]ln([d.sub.t]), and the growth in costs of drilling a well (normalized by location), [DELTA]ln([c.sub.t]), to set up a structural model of [Y.sub.t] = ([DELTA]ln([p.sub.t]),[DELTA]ln([d.sub.t]),[DELTA]ln([c.sub.t])).
compared with large swings in the real price of oil
where [K.sub.$], [K.sub.Y], [K.sub.DM], and [K.sub.x] are constants calculated so as to make the log of the real price of oil
on average over the 40 year period equal under each of the regimes to what it was in actual history.
Certainly the growth in demand in the WorldEoACAOs emerging markets suggests that rise might be due to supply and demand fundamentals pushing up the real price of oil
. For example, Chinese oil demand is up 8.3% so far this year, adding 0.7 million barrels per day to global demand according to the IEA.
We shall examine different responses of output to government spending shocks, tax revenues shocks and real price of oil
Kaplan ordered documentary producer and director Joe Berlinger to turn over to Chevron more than 600 hours of raw footage used to create a film titled Crude: The Real Price of Oil
about the true epic story of how 30,000 Ecuadorians rose up to challenge the pollution of their bodies, livestock, rivers and wells from drilling for oil there, a rainforest disaster that has been described as the Amazon's Chernobyl.
He identifies precautionary demand as any movement in the real price of oil
that cannot be explained statistically by his measures of shocks to supply and aggregate demand.
But higher oil prices elicit a strong response in another way as well - by inducing energy efficiency and technical change that reduce the amount of oil used in output and so ultimately reduce the real price of oil
. That is what is implied in chart a, which shows that after peaking in the 1970s, real oil prices then fell steadily in the 1980s and remained at very low levels for the next 20 years, only starting to rise in a consistent manner since 2004.
In the long run, one way the economy adjusts to a permanently higher real price of oil
is by adopting less oil-intensive production techniques.
Oil production in the lower 48 states increased more than ten-fold between 1900 and 1970, but the real price of oil