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Heterogeneous Oil Supply Elasticities: Indebtedness and Production Responses to the COVID-19 Shock

Sergei Seleznev¹; Veronika Selezneva²

¹ University of Cyprus, Cyprus · ² Université Paris Dauphine-PSL

Debt matters for oil supply elasticities. We document the resiliency of oil production to the COVID-19-related collapse in demand due to indebtedness. We use exogenous variation in the timing of debt-related payments to identify financially constrained operators. We show that more financially constrained firms cut production by less than less-constrained firms and were less likely to complete new wells. To explore the mechanisms, we use borrowing-limit cuts and credit-line drawdowns to measure access to credit, and we exploit failed hedging practices. The propagation of oil demand shocks crucially depends on the indebtedness of the oil sector.

DOI

10.1093/rfs/hhaf099

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en

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