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The Future of Oil: Geology versus Technology

Author/Editor: Benes, Jaromir | Chauvet, Marcelle | Kamenik, Ondra | Kumhof, Michael | Laxton, Douglas | Mursula, Susanna | Selody, Jack
Authorized for Distribution: May 1, 2012
Electronic Access: Free Full Text (PDF file size is 884KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We discuss and reconcile two diametrically opposed views concerning the future of world oil production and prices. The geological view expects that physical constraints will dominate the future evolution of oil output and prices. It is supported by the fact that world oil production has plateaued since 2005 despite historically high prices, and that spare capacity has been near historic lows. The technological view of oil expects that higher oil prices must eventually have a decisive effect on oil output, by encouraging technological solutions. It is supported by the fact that high prices have, since 2003, led to upward revisions in production forecasts based on a purely geological view. We present a nonlinear econometric model of the world oil market that encompasses both views. The model performs far better than existing empirical models in forecasting oil prices and oil output out of sample. Its point forecast is for a near doubling of the real price of oil over the coming decade. The error bands are wide, and reflect sharply differing judgments on ultimately recoverable reserves, and on future price elasticities of oil demand and supply.
 
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Series: Working Paper No. 12/109
Subject(s): Demand | Economic models | External shocks | Oil prices | Oil production | Supply
Author's keyword(s): Oil prices | exhaustible resources; fossil fuels; oil depletion; Hubbert’s Peak; Bayesian econometrics.
 
English  
    Published:   May 1, 2012        
            Format:   Paper
    Stock No:   WPIEA2012109   Pages:   32
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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