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Title: Modeling the U.S. oil market using heterogeneous interacting agents Authors:  Christoph Funk - Justus-Liebig-University Giessen (Germany) [presenting]
Johannes Lips - Justus-Liebig University Giessen (Germany)
Abstract: The recent decline in the price of oil since June 2014 and the increase in U.S. shale oil production gives an interesting environment for the use of heterogeneous interacting agents. We model the oil producing sector in the U.S. on a firm level by using a production function based on the endowment of capital assets (oil wells and fields) and a fixed labor input. Thereby, we are interested in investigating the interaction between shale oil and conventional oil producers and thus, the consequences for the real price of oil. We expect two different outcomes based on the initial endowment of capital assets. As the overall production level increases and prices decline, shale oil producers might not lower their production in order to satisfy capital investor's needs. Hence, shale oil producers show a trend toward over-leveraging, a high risk of insolvency and a tendency of excess production. In addition, large capital companies are less dependent on oil price fluctuations and are more likely to survive a long lasting decline in the price of oil. The model calibration will be evaluated using firm data for the U.S. oil market.