Sharp increase in oil price and the volatility in recent decades have attracted most researchers towards the field of energy. It seems not only the direct oil price, but also the uncertainty caused by the oil price volatility affect the raw oil supply.
In this research the effect of oil price volatility on oil supply has been estimated using monthly time series data from January 1980 to September 2007 for Iran, Saudi Arabia, Libya and Nigeria, and the monthly data from March 1981 to September 2007 for UK. Fist, applying GARCH the uncertainty from real oil price volatility is estimated, and then the long run coefficients are obtained using ARDL. The results indicate that the effect has been positive and significant in Saudi Arabia and Libya, but negative and significant in UK, while it was insignificant in Iran and Nigeria. This shows that the effect of oil price uncertainty on the oil supply depends on the shape of the utility function.
JEL Classification: C22, C32, C52, G14