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The fall in oil prices in 2014: the role of supply and demand components

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  • Delle Chiaie, S.

Abstract

The price of oil plunged in the second half of 2014, falling by more than 40% from June to December 2014. In this article, we use a structural econometric model for the global oil market, as in Kilian and Murphy (2014), to quantify the contributions of oil supply, aggregate demand and oil-specific demand shocks to the cumulative oil price change from June to December 2014. The results obtained from the estimated model indicate that oil prices have been driven down by all three factors. However, unanticipated supply shifts explain only one-third of the oil price decline. Aggregate demand shocks associated with an unexpected weakening in global real activity and other oil-specific demand components related to changes in market expectations of future demand and supply conditions, account for a larger portion of the oil price fall.

Suggested Citation

  • Delle Chiaie, S., 2015. "The fall in oil prices in 2014: the role of supply and demand components," Rue de la Banque, Banque de France, issue 12, October..
    • Handle: RePEc:bfr:rueban:2015:12
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    References listed on IDEAS

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    1. Simona Delle Chiaie & Laurent Ferrara & Domenico Giannone, 2022. "Common factors of commodity prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(3), pages 461-476, April.
    2. Lutz Kilian & Daniel P. Murphy, 2012. "Why Agnostic Sign Restrictions Are Not Enough: Understanding The Dynamics Of Oil Market Var Models," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1166-1188, October.
    3. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
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