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What is behind the increase in oil prices? Analyzing oil consumption and supply relationship with oil price

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  • Gallo, Andres
  • Mason, Paul
  • Shapiro, Steve
  • Fabritius, Michael
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    Abstract

    The continuing increases in oil prices have renewed the argument over the real culprits behind these movements. The growth in demand for oil in international markets, especially from the United States and China, is often identified as the main source of consumption pressure on prices, and thus the upward trend in oil prices. This paper uses unit root tests with two endogenous breaks to analyze the characteristics of oil prices, production, and consumption for several countries. By taking into account structural breaks, we find that many countries’ oil consumption and oil prices are stationary, while other countries are not. We also perform causality tests to determine the direction of any possible relationship between oil price and oil consumption and production. Our statistical analysis reveals that production variables cause oil prices, while oil prices tend to cause consumption. As a result, we claim that the blame for the recent fluctuations in oil prices is more appropriately associated with supply factors, not consumption influences.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy.

    Volume (Year): 35 (2010)
    Issue (Month): 10 ()
    Pages: 4126-4141

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    Handle: RePEc:eee:energy:v:35:y:2010:i:10:p:4126-4141

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    Web page: http://www.journals.elsevier.com/energy

    Related research

    Keywords: Q40 Energy general; Q41 Energy-supply and demand; L71: Industry studies – mining; extraction; and refining: hydrocarbon fuels; C22: Time series models;

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    Cited by:
    1. Jean-Francois Mercure & Pablo Salas, 2012. "On the global economic potentials and marginal costs of non-renewable resources and the price of energy commodities," Papers 1209.0708, arXiv.org, revised Jul 2013.
    2. Suganthi, L. & Samuel, Anand A., 2012. "Energy models for demand forecasting—A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(2), pages 1223-1240.
    3. Hassan, Syeda Anam & Zaman, Khalid, 2012. "Effect of oil prices on trade balance: New insights into the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2125-2143.

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