On the vulnerability of the oil and gas industry to oil price changes

Previous studies of oil-price economic activity relationships are dominated by macro-level examination of price effects. This study examines the effect of shocks in oil price and its volatility on the oil and gas extraction industry using a Vector Auto-Regressive (VAR) approach. The results show that, in the short-run, positive price and volatility shocks lead to significant increases in oil and gas activities. However, in the long-run, the industry behaves much like the rest of the U.S. economy—price and volatility shocks produce small or insignificant effects. An earlier version of this paper was presented at the 22 ^nd Annual North American Conference of the U.S.A. Energy Economics/International Association of Energy Economics Conference, Vancouver, British Columbia. The authors acknowledge the editorial assistance of Versa Stickle.