What's driving the price of crude oil? Analysis of determinants and causes of shocks
Abstract
Since the 1970s, the oil price has become very volatile, and characterized by uncertainties about its trajectories. In this paper we try to reconsidering the real reasons behind the most important oil shocks, through analyzing the fundamentals factors: demand and supply, and other factors that are likely to have contributed to some shocks: financial speculation; speculation in the physical market; and inventories. through analyzing the data of these factors and tracking the synchronization of the changes that occurred in it with changes in the price, and using a survey of the results and opinions of the literatures. We found that supply shocks affect oil price, but, if demand grows at a relatively continuous and steady rate. It cannot be said that supply or demand is the main determinant, But the price of oil is determined by the interaction of both supply and demand forces as other prices of other commodities. Other factors can have an indirect effect on price, contributing to the exacerbation of some shocks, not as a new independent factor but, through their impact on supply and demand.
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References
Kilian, Lutz. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market." The American Economic Review, 2009: 1053-1069.
Juvenal, Luciana, and Ivan Petrella. "Speculation in the oil market." Journal of applied econometrics, 2015: 621-649.
Ji, Qiang, and Ying Fan. "Evolution of the world crude oil market integration: A graph theory analysis." Energy Economics, 2016: 90-100.
Kaufmann, Robert K. "The role of market fundamentals and speculation in recent price changes for crude oil." Energy Policy, 2011: 105-115, p 4.
Ibid.
Smith, James L. "World oil: market or mayhem?" CEEPR, 2008.
Kaufmann, Robert K, Stephane Dees, Pavlos Karadeloglou, and Marcelo Sánchez. "Does OPEC matter? An econometric analysis of oil prices." The Energy Journal, 2004: 67-90.
Brémond, Vincent, Emmanuel Hache, and Valérie Mignon. "Does OPEC still exist as a cartel? An empirical investigation." Energy Economics, 2012: 125-131.
Kilian, Lutz. "Oil Price shocks : causes and consequences." Annual Review of Resource Economics, 2014: 133-154.
Hamilton, James D. "Understanding crude oil prices (No. w14492)." National Bureau of Economic Research, 2008, p 21.
Kilian, Lutz, and Bruce Hicks. "Did unexpectedly strong economic growth cause the oil price shock of 2003–2008?" Journal of Forecasting, 2013: 385-394.
Singleton, Kenneth J. "Investor flows and the 2008 boom/bust in oil prices." Management Science, 2013: 300-318.
Alquist, Ron, and Olivier Gervais. "The role of financial speculation in driving the price of crude oil." The Energy Journal, 2011.
Büyükşahin, Bahattin, and Jeffrey H. Harris. "Do speculators drive crude oil futures prices?" The Energy Journal, 2011: 167-202.
Fattouh, Bassam, Lutz Kilian, and Lavan Mahadeva. "The role of speculation in oil markets: What have we learned so far?" 2012.
Sanders, Dwight R., Keith Boris, and Mark Manfredo. "Hedgers, funds, and small speculators in the energy futures markets: an analysis of the CFTC's Commitments of Traders reports." Energy Economics, 2004: 425-445.
Hamilton, James D. "Causes and Consequences of the Oil Shock of 2007–08." Brookings Papers on Economic Activity, 2009.
Kilian, Lutz, and Thomas K Lee. "Quantifying the speculative component in the real price of oil: The role of global oil inventories." Journal of International Money and Finance, April 2014: 71-87.
Chevillon, Guillaume, and Christine Rifflart. "Physical market determinants of the price of crude oil and the market premium." Energy Economics, 2009: 537-549.
Kilian, Lutz, and Daniel P. Murphy. "The role of inventories and speculative trading in the global market for crude oil." Journal of Applied Econometrics, 2014: 454-478.
Griffin, James M. "OPEC behavior: a test of alternative hypotheses." The American Economic Review, 1985: 954-963.
Hamilton, James D. "Oil and the macroeconomy since World War II." Journal of political economy, 1983: 228-248.
Hamilton, James D. "Historical oil shocks (No. w16790)." National Bureau of Economic Research, 2011.
Matsumoto, Ken'ichi, Vlasios Voudouris, Dimitrios Stasinopoulos, Robert Rigby, and Carlo Di Maio. "Exploring crude oil production and export capacity of the OPEC Middle East countries." Energy policy, 2012: 820-828.
Kilian, Lutz. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market." The American Economic Review, 2009: 1053-1069.
Juvenal, Luciana, and Ivan Petrella. "Speculation in the oil market." Journal of applied econometrics, 2015: 621-649.
Ji, Qiang, and Ying Fan. "Evolution of the world crude oil market integration: A graph theory analysis." Energy Economics, 2016: 90-100.
Kaufmann, Robert K. "The role of market fundamentals and speculation in recent price changes for crude oil." Energy Policy, 2011: 105-115, p 4.
Smith, James L. "World oil: market or mayhem?" CEEPR, 2008.
Kaufmann, Robert K, Stephane Dees, Pavlos Karadeloglou, and Marcelo Sánchez. "Does OPEC matter? An econometric analysis of oil prices." The Energy Journal, 2004: 67-90.
Brémond, Vincent, Emmanuel Hache, and Valérie Mignon. "Does OPEC still exist as a cartel? An empirical investigation." Energy Economics, 2012: 125-131.
Kilian, Lutz. "Oil Price shocks : causes and consequences." Annual Review of Resource Economics, 2014: 133-154.
Hamilton, James D. "Understanding crude oil prices (No. w14492)." National Bureau of Economic Research, 2008, p 21.
Kilian, Lutz, and Bruce Hicks. "Did unexpectedly strong economic growth cause the oil price shock of 2003–2008?" Journal of Forecasting, 2013: 385-394.
Singleton, Kenneth J. "Investor flows and the 2008 boom/bust in oil prices." Management Science, 2013: 300-318.
Alquist, Ron, and Olivier Gervais. "The role of financial speculation in driving the price of crude oil." The Energy Journal, 2011.
Büyükşahin, Bahattin, and Jeffrey H. Harris. "Do speculators drive crude oil futures prices?" The Energy Journal, 2011: 167-202.
Fattouh, Bassam, Lutz Kilian, and Lavan Mahadeva. "The role of speculation in oil markets: What have we learned so far?" 2012.
Sanders, Dwight R., Keith Boris, and Mark Manfredo. "Hedgers, funds, and small speculators in the energy futures markets: an analysis of the CFTC's Commitments of Traders reports." Energy Economics, 2004: 425-445.
Hamilton, James D. "Causes and Consequences of the Oil Shock of 2007–08." Brookings Papers on Economic Activity, 2009.
Kilian, Lutz, and Thomas K Lee. "Quantifying the speculative component in the real price of oil: The role of global oil inventories." Journal of International Money and Finance, April 2014: 71-87.
Chevillon, Guillaume, and Christine Rifflart. "Physical market determinants of the price of crude oil and the market premium." Energy Economics, 2009: 537-549.
Kilian, Lutz, and Daniel P. Murphy. "The role of inventories and speculative trading in the global market for crude oil." Journal of Applied Econometrics, 2014: 454-478.
Griffin, James M. "OPEC behavior: a test of alternative hypotheses." The American Economic Review, 1985: 954-963.
Hamilton, James D. "Oil and the macroeconomy since World War II." Journal of political economy, 1983: 228-248.
Hamilton, James D. "Historical oil shocks (No. w16790)." National Bureau of Economic Research, 2011.
Matsumoto, Ken'ichi, Vlasios Voudouris, Dimitrios Stasinopoulos, Robert Rigby, and Carlo Di Maio. "Exploring crude oil production and export capacity of the OPEC Middle East countries." Energy policy, 2012: 820-828.
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