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Article

Shocks of supply and demand in the oil market, the equilibrium oil price and country responses of economic indicators

Teplova T., Lysenko V., Sokolova T.

We develop a model forecasting the equilibrium price in the oil market by balancing demand and supply at the level of interaction of the largest oil consuming and producing countries. Our model is based on the global vector autoregression methodology and allows to make a medium-term forecast of the equilibrium oil price in dynamics analyzing the co-movement of oil demand and supply in various countries, in view of possible shocks from countries and companies. The proposed model allows to reveal responses of economic indicators of various countries to changes of the equilibrium oil price. Our model covers 47 countries, including the OPEC, the CIS, the largest oil consuming countries.
Considering the CIS countries (Russia, Kazakhstan, Azerbaijan) and such OPEC countries as Iraq, the UAE, Qatar, Venezuela, Algeria, Nigeria and Angola is a unique element of the paper since the majority of models analyze the largest market players only. The test results on economic consequences of shock of oil supply from the largest producer (Saudi Arabia) and shock of oil demand from the largest consumer (China) are of empirical interest.