Abstract
Researchers from the Brandeis International Business School, in collaboration with King Abdullah Petroleum Studies and Research Center (KAPSARC) are building an agent-based oil supply simulation model that explains oil market imbalances and price volatility. This research contributes to the literature on agent-based models (ABM and complexity) of economic systems, showing how heterogeneity, path dependency, feedback loops, and learning by agents can affect investment, production, and ultimately market prices – today and in the future. Our approach looks at both the traditional VAR explanations (Killian, Hamilton, et. al.) of supply / demand shocks – exogenous and endogenous – and the longer standing Adelman (energy analysts and empirical modeling) approach that look at the market structure and behavior of major players/producers. We argue that parsing the investment and production decisions of different producers gives us the tools to model the dynamics of key energy players with different costs, profit, and production objectives. The heterogeneity of oil agents’ endogenous investment behavior results in lagged investment cycles and differential production patterns from fields throughout the world which, of course, leads to supply: demand imbalances and price volatility.