Korean Energy Economic Review ISSN:1599-7057(Print) 에너지경제연구

This paper empirically studies if a structural change in supply market happens after 2004, when the new era of high oil prices begins by demand-increase and low- spare-capacity. The methodology is to estimate and compare the price elasticity of crude oil supply before and after 2004, implying that difference in supply elasticity between two periods: the low level and the high level of oil prices. Since such methodology have been being confirmed for the identical purpose of structural change in supply market in other supply markets analysis, such as housing and U.S. gasoline markets, this paper applies to the crude oil supply market. The empirical results are as the followings. First, Non-OPEC supply elasticity is estimated lower for the high-oil-price period: 2004~2006, which confirms the generally-accepted theory that supply elasticity is lower as the spare-supply-capacity is weaker. Second, OPEC elasticity is negative for the low-level-price period from 1984~2003, which partially supports the target revenue theory. However, the sign of OPEC elasticity changes to positive from 2004~2006. From the results for OPEC, this paper conjectures that OPEC's supply curve is S-shaped that is applied from the backward-bending supply curve as Krugman (2004) suggested. Overall, the empirical results of supply elasticities clarifies the tightness of supply-demand in the world crude oil market after 2004, which contributes to a clearer understanding of the new era of high oil prices since 2004 by analyzing structural relations in the world oil crude market.