Supply-demand diagram for Australia's oil market. Uses Australia's supply cut (not global average) since Australia is more exposed than the world average due to high import dependency and Hormuz linkage.
Why elasticity matters so much: At -0.05, a 5% supply drop causes a 100% price increase (price doubles). At -0.10, the same drop only causes 50%. The literature range is -0.02 to -0.15 — this uncertainty alone swings the projected price by 3-7x. This is the single most important parameter in the model.
Market
Brent crude benchmark in USD/barrel.
Price Parameters
Short-Run Price Elasticity-0.050
Fed Reserve consensus: ~-0.05 for crude. More negative = demand adjusts more easily.