Low Oil Prices

Oil prices on global markets have plunged from United States (U.S.) $115 per barrel in mid-June of 2014 to U.S. $48 at end-January 2015, while other fuel prices have continued the slow downward trend of recent years. The rapid decline in oil prices by about 60 percent was accompanied by U.S. dollar appreciation against the major global currencies (except the Swiss franc), partly offsetting the oil price decline measured in currencies other than the dollar. The impact assessment of the oil price shock was conducted using a multi-county, multi-sector computable general equilibrium (CGE) model, PLACE, maintained by the Center for Climate Policy Analysis (CCPA). The effects of a permanent 60 percent oil price shock are assessed against a baseline scenario through 2020 based on the International Energy Agency (IEA) 2012 world energy outlook assuming a high oil price scenario of U.S. $118 in 2015 and U.S. $128 in 2020 (both in 2010 constant prices) and correlated price changes of coal (by 50 percent), and natural gas (by 30 percent). Model simulations show that, first, oil exporters will suffer substantial double-digit welfare losses through 2020 due to significant deterioration in their terms of trade. Second, the European Union (EU), as a large oil importer, will benefit significantly from lower oil prices, with the new member states being relatively better off, as a consequence of their relatively high energy intensity. Third, if the assumed permanent oil price shock occurs at half the level of the headline 60 percent scenario (proxying for U.S. dollar appreciation or reflecting a rebound in oil prices from their early 2015 levels through 2020), welfare effects will be smaller and less than proportional for most countries. Finally, in the EU, the existing emissions cap constrain the use of cheaper fossil fuels and limits the welfare increase by about 0.5 percentage points. The interpretation of results from the CGE model has been supported by regression, attributing the diversity of the simulated welfare effects by region to certain characteristics of regional economies, such as refined oil products-to- gross domestic product (GDP) and net exports of crude oil-to-GDP ratios.

Bibliographic Details

Main Authors:	Boratynski, Jakub, Kasek, Leszek
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2015-03
Subjects:	NATURAL GAS OUTPUT, MONETARY POLICY, CANE, SUBSTITUTION, OIL PRICE, ECONOMIC GROWTH, POLICY SCENARIO, ANIMAL PRODUCTS, REFINED PRODUCTS, RELATIVE PRICE, FOSSIL FUELS, SUPPLY CURVE, ESP, INCOME, EMISSION CONSTRAINTS, VEHICLES, ACTIVITIES, GENERATION, OIL SUPPLY, BALANCE OF PAYMENTS, EMISSIONS, HIGH ENERGY INTENSITY, GAS PRICES, REVENUES, GAS PRICE, COAL PRICES, MODELS, GAS, PRICE, OIL CONSUMPTION, OIL PRODUCTION, MARGINAL ABATEMENT, CARBON TECHNOLOGIES, SUPPLY SIDE, EMISSIONS ABATEMENT, STEAM COAL, ECONOMIC ACTIVITY, BIOMASS, OILS, PETROLEUM, OIL PRICES, EMISSIONS FROM COAL, SUPPLY OF CRUDE, OIL DEMAND, NATURAL GAS PRICES, IMPORT PRICES, COAL USE, SCENARIOS, OIL, PRICES OF COAL, CLIMATE POLICIES, ENERGY MIX, ENERGY SOURCES, REFINED PETROLEUM PRODUCTS, ENERGY INTENSITY, GAS PRODUCTION, OIL PRODUCTS, WATER, FUEL SUBSTITUTION, MARKETS, OIL IMPORTS, SUGAR CANE, IMPORTS, RELATIVE PRICES, DRILLING ACTIVITY, GENERAL EQUILIBRIUM MODEL, CAPS, ENERGY POLICY, FUELS, REAL ESTATE, FINANCE, CARBON EMISSIONS, CARBON CAP, EMISSION, CONSUMPTION, ECONOMIC IMPACT, GAS EXTRACTION, HEAT, POLICIES, CHEMICAL INDUSTRY, BALANCE, ALTERNATIVE ENERGY, LOWER COSTS, FINANCIAL CRISIS, VALUE, POWER, ELECTRICITY, CEMENT, PRICE OF OIL, OIL DRILLING, OIL PRICE SCENARIO, EMISSION TARGETS, CLIMATE, DEMAND, ABATEMENT, FOSSIL FUEL IMPORTS, CARBON PRICE, FOSSIL FUEL, TAX RATES, OIL PRODUCERS, FUEL PRICES, GAS OUTPUT, ENERGY USE, NET OIL, MARKET, ENERGY PRICES, PRICE INCREASE, END-USER PRICE, ABATEMENT COSTS, POLICY, FUEL EXTRACTION, INSURANCE, ENERGY DEMAND, ENERGY OUTLOOK, NATURAL GAS, SHADOW PRICE, CARBON PRICES, COMBUSTION, OIL EXPORTERS, GASEOUS FUELS, LOWER PRICES, FOSSIL FUEL PRICES, DOMINANT FUEL, ENERGY GOODS, COAL, FINANCIAL MARKETS, ALLOCATION, SUPPLY, CRUDE OIL, FUEL, OIL SHOCKS, DRILLING, PRICES OF ENERGY, COMMODITY MARKETS, AVAILABILITY, LABOR SUPPLY, CLIMATE POLICY, OUTPUT DECLINES, EXCHANGE RATE, PETROLEUM PRODUCTS, CARBON TAX, GASES, POLICY ANALYSIS, OIL USE, HEAT GENERATION, FOSSIL, EMISSION PRICING, PRICES, APPROACH, F- GASES, OIL SECTOR, GAS DISTRIBUTION, BENEFITS, ECONOMIC ADJUSTMENT, ENERGY,
Online Access:	http://documents.worldbank.org/curated/en/2015/06/24677885/low-oil-prices-long-term-economic-effects-eu-other-global-regions-based-computable-general-equilibrium-place-model https://hdl.handle.net/10986/22398
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