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Black Gold and Fool’s Gold: Speculation in the Oil Futures Market

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  • John Parsons

Abstract

This paper addresses the question of whether the oil price spike of 2003-2008 was a bubble. We document and discuss what is known about the level of speculation in the paper oil market. We then analyze the dynamics of the term structure of futures prices, both during the earlier period of 1985-2002 and during the spike. The dynamics of the term structure changed in important ways during this latter period, and we explain how this may have contributed to generating a bubble. We also explain how this answers the puzzle of the lack of accumulating above-ground inventories. Finally, we discuss the implications for regulatory reform of the paper oil markets.

Suggested Citation

  • John Parsons, 2010. "Black Gold and Fool’s Gold: Speculation in the Oil Futures Market," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 81-116, January.
    • Handle: RePEc:col:000425:008582
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    Cited by:

    1. Josef Zuckerstätter & Maria Maltschnig, 2013. "Finanzmärkte und Rohstoffpreise," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 121, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    2. Jobling, Andrew & Jamasb, Tooraj, 2017. "Price volatility and demand for oil: A comparative analysis of developed and developing countries," Economic Analysis and Policy, Elsevier, vol. 53(C), pages 96-113.
    3. Márquez-Velázquez, Alejandro, 2019. "Developing countries' political cycles and the resource curse: Venezuela's case," Discussion Papers 2019/14, Free University Berlin, School of Business & Economics.
    4. Alzahrani, Mohammed & Masih, Mansur & Al-Titi, Omar, 2014. "Linear and non-linear Granger causality between oil spot and futures prices: A wavelet based test," Journal of International Money and Finance, Elsevier, vol. 48(PA), pages 175-201.
    5. Park, Jin Suk & Shi, Yukun, 2017. "Hedging and speculative pressures and the transition of the spot-futures relationship in energy and metal markets," International Review of Financial Analysis, Elsevier, vol. 54(C), pages 176-191.
    6. Gatfaoui, Hayette, 2016. "Linking the gas and oil markets with the stock market: Investigating the U.S. relationship," Energy Economics, Elsevier, vol. 53(C), pages 5-16.
    7. Papież, Monika & Śmiech, Sławomir, 2015. "Dynamic steam coal market integration: Evidence from rolling cointegration analysis," Energy Economics, Elsevier, vol. 51(C), pages 510-520.
    8. Śmiech, Sławomir & Papież, Monika & Dąbrowski, Marek A., 2015. "Does the euro area macroeconomy affect global commodity prices? Evidence from a SVAR approach," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 485-503.
    9. Papież, Monika & Śmiech, Sławomir & Dąbrowski, Marek A., 2014. "The impact of the Euro area macroeconomy on energy and non-energy global commodity prices," MPRA Paper 56663, University Library of Munich, Germany.
    10. Chiou-Wei, Song-Zan & Linn, Scott C. & Zhu, Zhen, 2014. "The response of U.S. natural gas futures and spot prices to storage change surprises: Fundamental information and the effect of escalating physical gas production," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 156-173.
    11. Gatfaoui, Hayette, 2019. "Diversifying portfolios of U.S. stocks with crude oil and natural gas: A regime-dependent optimization with several risk measures," Energy Economics, Elsevier, vol. 80(C), pages 132-152.
    12. D'Ecclesia, Rita L. & Magrini, Emiliano & Montalbano, Pierluigi & Triulzi, Umberto, 2014. "Understanding recent oil price dynamics: A novel empirical approach," Energy Economics, Elsevier, vol. 46(S1), pages 11-17.
    13. Sifat, Imtiaz & Ghafoor, Abdul & Ah Mand, Abdollah, 2021. "The COVID-19 pandemic and speculation in energy, precious metals, and agricultural futures," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    14. Julien Chevallier, 2013. "Price relationships in crude oil futures: new evidence from CFTC disaggregated data," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(2), pages 133-170, April.
    15. Babajide Fowowe, 2014. "Paper oil and physical oil: has speculative pressure in oil futures increased volatility in spot oil prices?," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 38(3), pages 356-372, September.
    16. Yue-Jun Zhang & Shu-Hui Li, 2019. "The impact of investor sentiment on crude oil market risks: evidence from the wavelet approach," Quantitative Finance, Taylor & Francis Journals, vol. 19(8), pages 1357-1371, August.
    17. Ederington, Louis H. & Fernando, Chitru S. & Hoelscher, Seth A. & Lee, Thomas K. & Linn, Scott C., 2019. "Characteristics of petroleum product prices: A survey," Journal of Commodity Markets, Elsevier, vol. 14(C), pages 1-15.

    More about this item

    Keywords

    oil; futures; speculation; bubble;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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