The role of inventories and speculative trading in the global market for crude oil
TLDR
The authors developed a structural model of the global market for crude oil that for the first time explicitly allows for shocks to the speculative demand for oil as well as shocks to flow demand and flow supply.Abstract:
SUMMARY
We develop a structural model of the global market for crude oil that for the first time explicitly allows for shocks to the speculative demand for oil as well as shocks to flow demand and flow supply. The speculative component of the real price of oil is identified with the help of data on oil inventories. Our estimates rule out explanations of the 2003–2008 oil price surge based on unexpectedly diminishing oil supplies and based on speculative trading. Instead, this surge was caused by unexpected increases in world oil consumption driven by the global business cycle. There is evidence, however, that speculative demand shifts played an important role during earlier oil price shock episodes including 1979, 1986 and 1990. Our analysis implies that additional regulation of oil markets would not have prevented the 2003–2008 oil price surge. We also show that, even after accounting for the role of inventories in smoothing oil consumption, our estimate of the short-run price elasticity of oil demand is much higher than traditional estimates from dynamic models that do not account for for the endogeneity of the price of oil. Copyright © 2013 John Wiley & Sons, Ltd.read more
Citations
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References
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Not All Oil Price Shocks are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market
Lutz Kilian,Lutz Kilian +1 more
TL;DR: In this paper, a structural decomposition of the real price of crude oil in four components is proposed: oil supply shocks driven by political events in OPEC countries; other oil supply shock; aggregate shocks to the demand for industrial commodities; and demand shocks that are specific to the crude oil market.
Journal ArticleDOI
Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market
TL;DR: In this article, a structural decomposition of the real price of crude oil is proposed, based on a newly developed measure of global real economic activity, and the authors estimate the dynamic effects of these shocks on the real prices of oil.
Journal ArticleDOI
What are the effects of monetary policy on output? Results from an agnostic identification procedure
TL;DR: The authors proposed to estimate the effects of monetary policy shocks by a new agnostic method, imposing sign restrictions on the impulse responses of prices, nonborrowed reserves and the federal funds rate in response to a monetary policy shock.
Journal ArticleDOI
The impact of oil price shocks on the u.s. stock market
Lutz Kilian,Cheolbeom Park +1 more
TL;DR: In this paper, the reaction of U.S. real stock returns to an oil price shock differs greatly depending on whether the change in the price of oil is driven by demand or supply shocks in the oil market.
ReportDOI
Causes and Consequences of the Oil Shock of 2007–08
TL;DR: This article explored similarities and differences between the run-up of oil prices in 2007-08 and earlier oil price shocks, looking at what caused these price increases and what effects they had on the economy.