Suggested Citation:
Lin Lawell, C.-Y. Cynthia (2011) Estimating Supply and Demand in the World Oil Market. Journal of Energy and Development 34 (1), 1 - 32

This paper uses instrumental variables to jointly estimate aggregate monthly supply and demand curves for world oil under the assumptions of a static and perfectly competitive oil market. Results indicate that world oil demand is inelastic. Although the supply and demand curves were consistent with economic theory in the cases of world demand, non-OPEC demand, and two specifications for supply, this was not the case for either OPEC demand or for most specifications for supply. The assumptions of a static and perfectly competitive world oil market are thus unrealistic, especially in modeling oil supply.

Keywords: oil supply, oil demand, global markets, instrument, OPEC, non-OPEC, economic modeling