Modern global oil market under stress: system dynamics and scenarios

Abstract

Modelling techniques developed 40 years ago to gain insight into the issues of energy supply security remain powerful even as the focus of energy technology policy analysis has shifted to consider new problems and to use research methods more closely linked to pressing environmental challenges. Dynamic modelling continues to be of merit and indeed it has the potential to provide helpful perspectives on contemporary problems such as climate change and the transition to net-zero greenhouse gas emissions. This study seeks to help revive system dynamics (SD) modelling of the global oil market. The SD-based analysis used in this paper facilitates a rational representation of physical stocks and flows as well as causal linkages that drive decision making in the global oil system. The use of SD provides insights (intuitive and counter-intuitive) into the macro-level non-linear dynamics of global oil exchanges and permits assessment of the potential impacts of future changes in system behaviour. The model exhibits damped oscillations in oil prices, broadly consistent with real market behaviours. The results further illustrate the resilience of market dynamics in the phase of extreme supply-side shocks and reveal the ability of SD to simulate and model such effects even beyond the point of market failure.