Is the recent low oil price attributable to the shale revolution?

- Significant break for the mean of the U.S. oil production growth in 2002
- Structural changes in dynamic coefficients and volatilities in the SVAR model
- Historical decomposition and impulse response exercises show a critical role of U.S. supply shock in movements in the real oil price.

The U.S. Energy Information Administration estimates that approximately 52% of total U.S. crude oil was produced from shale oil resources in 2015. We examine whether the recent low crude oil price is attributable to this shale revolution in the U.S., using a SVAR model with structural breaks. Our results reveal that U.S. supply shocks are important drivers of real oil price and, for example, explain approximately a quarter of the 73% decline between June 2014 and February 2016. Failure to consider statistically significant structural changes results in underestimating the role played by global supply shocks, while overestimating the role of the demand shocks.