Alexander Naumov, Gerhard Toews, 22 February 2016

The recent dramatic decline in the price of oil runs counter to the argument that oil prices should be high because of the high costs. This column presents new evidence on this relationship. Using a representative global dataset, the authors find that upstream costs follow oil prices with a time lag. In particular, a sustained 10% increase in the price of oil leads to an increase in upstream activity of about 4%, and in this way triggers a sustained 3% increase in global upstream costs after a lag of one to two years.

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