Study On Capital Expenditure Behaviors Of Oil Companies From The Perspective Of Business Cycle

Since shale technology succeeded in 2014,the global supply and demand for oil changed,international oil prices entered into a "new-normal" era.Due to the significant impact of oil prices,the petroleum industry development is thought to be cyclical and its investment behaviors will change accordingly.Therefore,this study explores oil companies' capital expenditure behaviors from the perspective of business cycle.This study proposes a business cycle identification method using the Markov Two-regime Switching and one-lagged autoregressive model(MS(2)-AR(1)),and divides 1986-2016 petroleum industry development into two phases in line with the dynamic relationship between macroeconomic level and oil price.On this basis,the annual capital expenditure data of worldwide 1,511 oil companies are selected and a panel vector autoregressive model(PVAR)is established to investigate inertia,procyclicity,and elasticity of capital expenditure behaviors.The Results show that:(1)The petroleum industry experienced two business cycles from 1986 to 2016,namely 1986-1997 and 1998-2016.The first phase showed stable development,low investment level,and low fluctuations while the second one acts oppositely.(2)The oil company's capital expenditure behaviors have a negative inertia,showing a self-diminishing trend,that is,this year's change of investment is opposite to that of the last year,indicating that within a certain period of time,the oil company's investment level has converged within a reasonable range.(3)The oil company's capital expenditure behaviors are pro-cyclical to economy and counter-cyclical to oil price,indicating that they will consider the basic supply and demand of economic activities.Meanwhile,high volatility in oil prices mean greater uncertainty,oil companies will therefore delay investment or make conservative decisions.(4)The elasticity of capital expenditure behaviors to macro economy and oil prices becomes larger,meaning the ability of oil companies to resist macroeconomic risks and oil price risks is gradually weakened and the adjustment time of investment decisions becomes longer.In addition,this study also proposes valuable policy recommendations for oil companies in light of the above three characteristics of capital expenditure behaviors.