DRILLING RATES AND EXPECTED OIL PRICES - THE OWN PRICE ELASTICITY OF UNITED-STATES OIL-SUPPLY

This paper evaluates the feasibility of policies to increase exploration and development by the oil industry. To do so, we estimate a new model for well completions in the United States that includes the effect of price expectations from survey data, that separates exploratory from development wells, and that uses a deflator based on the cost of drilling a well. The regression results indicate that the price elasticity of drilling is considerably smaller than previous estimates. When combined with recent analyses of drilling success, the results indicate that the own price elasticity of U.S. oil supply is relatively small. The low price elasticity of supply indicates that efforts to increase domestic oil supplies by increasing well completions may be more expensive than believed previously.