CEBA talks 2020-2022
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Heterogeneous Oil Supply Elasticities: Indebtedness and Production Responses to the COVID-19 Shock

Authors: Sergei Seleznev (INECO Capital Ltd) and Veronika Selezneva (CERGE-EI)

Abstract: 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 wells. To explore the mechanisms, we use borrowing limit cuts and credit line drawdowns to measure access to credit, and exploit failed hedging practices to identify additional cash pressures. The propagation of oil demand shocks depends crucially on the indebtedness of the oil sector. 

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