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Updated: Jun 28, 2025

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Understanding Oil Cycle Dynamics to Design the Future Economy
Luis Enrique Garcia1, Aude Illig2, Ian Schindler3
1Section of Post Graduate Studies and Research, ESE, IPN, Mexico, Mexico.
Economic production relies on available energy. This study models oil prices using extraction rates and Federal Reserve interest rates, predicting a contraction phase with low oil prices starting in 2020.
Area of Science:
- Economics
- Energy Resources
- Economic Modeling
Background:
- Economic production is fundamentally linked to available energy.
- Previous work established oil prices as a function of economic size, oil cost share, and extraction quantity.
Purpose of the Study:
- To clarify assumptions for using an explicit oil price equation.
- To develop a linear regression model for oil prices (1966-2018).
- To analyze the future trajectory of oil extraction and prices.
Main Methods:
- Linear regression analysis.
- Utilizing current and previous year's oil extraction rates.
- Incorporating Federal Reserve interest rates.
Main Results:
- The developed model aligns with empirical oil price data from 1966 to 2018.
- Analysis indicates the onset of a world oil extraction contraction phase in 2020.
- This contraction is projected to coincide with relatively low oil prices.
Conclusions:
- The study validates the explicit price equation's deductions with historical data.
- A future economy may face challenges and opportunities due to predicted oil market changes.
- Economic production models should consider energy availability and extraction dynamics.
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