The U.S. government has a good idea of where oil prices are headed and why, said Christiane Baumeister, the Robert and Irene Bozzone Associate Professor of Economics. But the demand side — how much energy people will buy at a given price — is less clear.
So the U.S. Energy Information Administration (EIA), a part of the Department of Energy that collects and distributes data on energy and the economy, recruited Baumeister to develop an indicator for future energy demand.
With a two-year, $120,000 grant, she’ll collect data on possible determinants of oil demand and create models to figure out which of those factors actually determine future demand. Having that information, she said, tells us about more than just oil.
“Energy is one basic resource on which our economy thrives,” Baumeister said. “We need energy for any type of economic activity, for daily life. It’s a big factor in how well the economy is doing.”
Baumeister, who joined the Notre Dame faculty in 2015, has studied energy markets and prices throughout her career. She specialized in oil markets as a principal researcher in the Bank of Canada’s International Economic Analysis Department, and she has collaborated with the EIA on studying oil prices.
Previous work on oil price fluctuations, Baumeister said, relied on conventional indicators — dry cargo freight rates, prices of industrial commodities, or steel production — to determine demand.
“The shortcoming of all these indicators is that they might be too narrow in scope since they are all based on a single category of variables,” she said. “The question my project tries to answer is whether we can improve upon existing indicators by combining information from a variety of data types. The goal is to be more comprehensive and consider all possible determinants of energy demand together in order to develop a novel indicator.”
“The question my project tries to answer is whether we can improve upon existing indicators by combining information from a variety of data types. The goal is to be more comprehensive and consider all possible determinants of energy demand together in order to develop a novel indicator.”
With the help of a research assistant, Baumeister will start with an extensive data search, collecting as much information from existing databases as she can on factors such as energy consumption, inventory buildup, stock prices of industries related to energy production, order books, and prices for other commodities.
“Then, we’ll evaluate them based on past observations — how successful such an indicator has been in forecasting these variables — and then extrapolate that to the future,” she said.
The EIA can then use Baumeister’s indicator in its short-term energy outlooks, giving policymakers and the public crucial insights into energy demand, efficiency, and independence.
“It’s a way of advising policymakers what course of action to take to ensure that supply and demand match,” she said.
To develop this new indicator, Baumeister will also have the support and collaboration of economists and industry experts at the EIA.
“It’s nice to work with people who are really on top of things in this field and have the exposure and contacts in the industry,” she said. “It’s great that they approached me and thought I was the right person for the job.”