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The Impact of the Oil Sector on Commodity Prices: Correlation or Causation?

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  • Saghaian, Sayed H.

Abstract

The interconnections of agriculture and energy markets have increased through the rise in the new biofuel agribusinesses and the oil-ethanol-corn linkages. The question is whether these linkages have a causal structure by which oil prices affect commodity prices and through these links, instability is transferred from energy markets to already volatile agricultural markets. In this article, we present empirical results using contemporary time-series analysis and Granger causality supplemented by a directed graph theory modeling approach to identify the links and plausible contemporaneous causal structures among energy and commodity variables. The results show that although there is a strong correlation among oil and commodity prices, the evidence for a causal link from oil to commodity prices is mixed.

Suggested Citation

  • Saghaian, Sayed H., 2010. "The Impact of the Oil Sector on Commodity Prices: Correlation or Causation?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 42(3), pages 477-485, August.
    • Handle: RePEc:cup:jagaec:v:42:y:2010:i:03:p:477-485_00
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    References listed on IDEAS

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    1. von Braun, Joachim & Torero, Maximo, 2009. "Exploring the Price Spike," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 24(1), pages 1-6.
    2. von Braun, Joachim & Ahmed, Akhter & Asenso-Okyere, Kwadwo & Fan, Shenggen & Gulati, Ashok & Hoddinott, John & Pandya-Lorch, Rajul & Rosegrant, Mark W. & Ruel, Marie & Torero, Maximo & van Rheenen, Te, 2008. "High food prices: The what, who, and how of proposed policy actions," Policy briefs 1A, International Food Policy Research Institute (IFPRI).
    3. Siebert, John W. & Hagerman, Amy D. & Park, John L., 2008. "Virtual Investment Concepts and the Ethanol Industry," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 11(4), pages 1-14, November.
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    More about this item

    JEL classification:

    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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