The oil extraction puzzle: theory and evidence

Abstract

This paper considers the relationship between the extraction rates and remaining reserves of a non-renewable resource. Under general conditions the derived extraction rule is firstly linear, and secondly exhibits a slope term common to all extractors regardless of pricing behaviour and costs whilst differences are captured by the intercept. Data from the world oil industry supports the hypothesis of linearity but the implied test was rejected in some cases. Latterly, it appears that either OPEC members are discounting at a higher rate than the competitive fringe or they are overstating their reserve levels.oil, OPEC, extraction, reserves, resources