Peaks, Spikes, and Barrels: Modeling Sharp Movements in Oil Prices
International Monetary Fund, Aug 1, 2010 - Business & Economics - 17 pages
Global oil markets were roiled by sharp price swings in 2008, and economists are still divided over the reasons for the unusual volatility. Those emphasizing fundamentals point to inelastic supply and demand curves, others view the phenomenon mostly as a result of financial investors flocking into commodity markets. This paper attempts to infer the strength of these competing hypotheses, using a simultaneous equation model that enables us to undertake a separate analysis of supply and demand factors. The model broadly captures both the surge and subsequent fall in prices, with a particularly strong impact of demand factors. The model captures a strong effect of a measure for global liquidity but does not find support for a speculative motive.
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assets under management autocorrelation capture coefficient commodity asset demand commodity index funds commodity investments commodity markets commodity prices deﬂated demand and supply Demand Determinants demand for oil demand relationship Dependent Variable Determinants Emerging markets Durbin-Watson stat emerging markets oil estimates futures contracts Geopolitical risks global liquidity t-1 inﬂation expectations inﬂuenced INTERNATIONAL MONETARY FUND inventory holding Krichene long-run determinants markets oil imports Mean of Dependent nominal global liquidity nominal oil price non-commercial contracts t-1 non-OPEC oil supply NYMEX OECD consumption t-1 OECD demand margin oil consumption oil demand oil imports t-1 Oil Price Forecast oil price real oil production OPEC countries OPEC supply margin Panel percent of Mean political risk pressure on oil price elasticity price real oil price swings put upward pressure R-squared R-squaredl real global liquidity real oil price risk aversion speculative bubble stock of non-commercial Supply Determinants surge in oil U.S. dollar VIX index t-1