Speaker: Veronika Selezneva (Assistant Professor, CERGE-EI, Czech Republic)
Title: Heterogeneous Oil Supply Elasticities: Indebtedness and Production Responses to the COVID-19 Shock
Field of study
"Empirical Corporate Finance, Financial Economics."
What problem is your research intended to solve?
"We explore the puzzling resilience of oil production to low oil prices. The main takeaway of our paper is that debt matters for oil supply adjustments to low oil prices. We contribute to the literature by providing the first large-scale evidence of production resilience due to indebtedness."
What did your research find?
"We argue that indebtedness mutes oil supply responses. Intuitively, the oil industry is heavily indebted in general, and when oil prices fall, many producers struggle to service their debt and maintain high production levels to maintain sufficient cash flow. The propagation of oil demand shocks depends crucially on the indebtedness of the oil sector. We discuss effectiveness of potential policies (such as production caps actually introduced in Canada)."
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.
More information, a link to the research and the upcoming seminar here.
We are looking forward to seeing you!