Three Essays on Oil Prices and Their Macroeconomic Effects to the United States

Abstract

This dissertation essay contains three chapters with empirical analysis on different factors affecting global crude oil price and their impact on the United States macroeconomy, with specific focus on supply side of the global oil market.

The first chapter, ``How OPEC Oil Shocks Shape U.S. CPI Inflation: Evidence from an IV-SVAR Approach", investigates the transmission of structural global oil market shocks to U.S. inflation using an IV-SVAR approach applied to highly disaggregated CPI components. We specifically utilize oil supply news shocks—market expectations of future OPEC production changes—and find that a news-driven 10% oil price increase triggers a significant 5% surge in headline inflation. Analyzing over 55 sectoral indexes reveals that these effects are heavily concentrated in energy-related goods, while other components remain muted or respond negatively. We identify consumer budget reallocation as a primary mitigating mechanism: households facing rising energy costs shift demand toward more affordable alternatives, such as used vehicles and food at home. By employing weak-instrument robust inference, this study demonstrates that headline inflation dynamics are driven by specific energy sub-components and adaptive consumer behavior rather than broad-based sectoral increases.

The second chapter, ``The Effect of OPEC Shocks on Producer Prices in the United States", examines how exogenous shocks originating from the Organization of Petroleum Exporting Countries (OPEC) influence U.S. producer prices. Using an instrumental variable structural vector autoregression (IV-SVAR) framework, I distinguish between two types of shocks: oil supply shocks stemming from OPEC production disruptions caused by military or political events, and oil supply news shocks capturing changes in market expectations of future production following OPEC announcements. My empirical analysis suggests that both shocks significantly raise overall producer prices, primarily through higher fuel and power costs. The largest effects occur in energy-intensive industries such as chemicals and non-metallic minerals, as well as petrochemical sectors like rubber and plastics, while other sectors experience relatively muted impacts.

The third chapter, ``Shale Boom and the Responsiveness of U.S. Oil Production to Global Oil Market Shocks" examines how U.S. oil production responds to oil market shocks in a structural vector autoregression (SVAR) framework. Using recursive setting, three oil market shocks are identified: flow supply shock, flow demand shock, and oil specific shock. My empirical analysis suggests that U.S. shale production is uniquely responsive, offsetting roughly one-fifth of the initial decline in non-U.S. output following a negative supply shock. Extending the analysis to aggregate production and rig counts from the seven major shale regions reveals qualitatively similar patterns, with drilling activity responding more rapidly than output. Additional evidence from drilling, completions, and drilled-but-uncompleted wells (DUCs) highlights the operational mechanisms underpinning production gains, while basin level estimates show that responses are concentrated in oil focused regions such as the Permian, Bakken, and Eagle Ford.