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Physical market determinants of the price of crude oil and the market premium

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Author Info
Chevillon, Guillaume
Rifflart, Christine

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Abstract

We analyze the determinants of the real price of crude oil by means of an equilibrium correction model over the last two decades where we focus on the aspects of the physical market that impact on the clearing price. We find that two cointegrating relations affect the changes in prices: one refers to OPEC's behavior, attempting to control prices using its market power and quotas; the other to the coverage rate of OECD expected future demand using inventory behaviors. We derive a forecasting equation for the change in oil prices which we use to assess the speculative elements of the price increases of the period 2000-05. We show that worries alien to the physical markets were the causes of the increase in oil prices and we quantify their overall impact.

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Publisher Info
Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 31 (2009)
Issue (Month): 4 (July)
Pages: 537-549
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Handle: RePEc:eee:eneeco:v:31:y:2009:i:4:p:537-549

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Keywords: Oil price Market premium Forecasting Cointegration;

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References listed on IDEAS
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  1. van Amano, Robert A & Norden, Simon, 1998. "Exchange Rates and Oil Prices," Review of International Economics, Blackwell Publishing, vol. 6(4), pages 683-94, November.
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  2. Hendry, David F & Hans-Martin Krolzig, 2003. "The Properties of Automatic Gets Modelling," Royal Economic Society Annual Conference 2003 105, Royal Economic Society. [Downloadable!]
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  3. Krichene, Noureddine, 2002. "World crude oil and natural gas: a demand and supply model," Energy Economics, Elsevier, vol. 24(6), pages 557-576, November. [Downloadable!] (restricted)
  4. Peter Wickham, 1996. "Volatility of Oil Prices," IMF Working Papers 96/82, International Monetary Fund.
  5. Tang, Linghui & Hammoudeh, Shawkat, 2002. "An empirical exploration of the world oil price under the target zone model," Energy Economics, Elsevier, vol. 24(6), pages 577-596, November. [Downloadable!] (restricted)
  6. Geroski, Paul A & Ulph, Alistair M & Ulph, David T, 1987. "A Model of the Crude Oil Market in Which Market Conduct Varies," Economic Journal, Royal Economic Society, vol. 97(388a), pages 77-86, Supplemen. [Downloadable!] (restricted)
  7. Griffin, James M, 1985. "OPEC Behavior: A Test of Alternative Hypotheses," American Economic Review, American Economic Association, vol. 75(5), pages 954-63, December. [Downloadable!] (restricted)
  8. Hendry, David F., 1997. "On congruent econometric relations : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 163-190, December. [Downloadable!] (restricted)
  9. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
  10. James D. Hamilton, 2000. "What is an Oil Shock?," NBER Working Papers 7755, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Hubbard, R Glenn, 1986. "Supply Shocks and Price Adjustment in the World Oil Market," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 85-102, February. [Downloadable!] (restricted)
  12. Kuper, Gerard H., 2002. "Measuring oil price volatility," CCSO Working Papers 200208, University of Groningen, CCSO Centre for Economic Research. [Downloadable!]
  13. Verleger, Philip K, Jr, 1982. "The Determinants of Official OPEC Crude Prices," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 177-82, May. [Downloadable!] (restricted)
  14. Gil-Alana, Luis A., 2001. "A fractionally integrated model with a mean shift for the US and the UK real oil prices," Economic Modelling, Elsevier, vol. 18(4), pages 643-658, December. [Downloadable!] (restricted)
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  15. Kuper, Gerard H., 2002. "Measuring oil price volatility," Research Report 02C43, University of Groningen, Research Institute SOM (Systems, Organisations and Management). [Downloadable!]
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