Physical Market Determinants of the Price of Crude Oil and the Market Premium
AbstractWe analyze the physical, i.e. non financial, determinants of the real price of crude oil by means of an equilibrium correction model over the last two decades. We find that two cointegrating relations affect the change in prices: one refers to OPEC's cartel behavior attempting to control prices using its market power and quotas; the other to the coverage rate of expected future demand by OECD using inventory behaviours. We derive an equation for the change in oil prices which we use to assess the speculative elements of the early millennium price hike. We show that worries alien to the physical markets are the causes of the increase in oil prices and are able to quantify their impact.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 07020.
Length: 24 pages
Date of creation: Jun 2007
Date of revision:
Cointegration; Forecast; Market Premium; Oil Price;
Other versions of this item:
- Chevillon, Guillaume & Rifflart, Christine, 2009. "Physical market determinants of the price of crude oil and the market premium," Energy Economics, Elsevier, vol. 31(4), pages 537-549, July.
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-08 (All new papers)
- NEP-BEC-2007-12-08 (Business Economics)
- NEP-ENE-2007-12-08 (Energy Economics)
- NEP-MIC-2007-12-08 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hendry, David F & Hans-Martin Krolzig, 2003.
"The Properties of Automatic Gets Modelling,"
Royal Economic Society Annual Conference 2003
105, Royal Economic Society.
- David Hendry & Hans-Martin Krolzig, 2003. "The Properties of Automatic Gets Modelling," Economics Papers 2003-W14, Economics Group, Nuffield College, University of Oxford.
- David Hendry & Hans-Martin Krolzig, 2003. "The Properties of Automatic Gets Modelling," Economics Series Working Papers 2003-W14, University of Oxford, Department of Economics.
- Neil R. Ericsson & James G. MacKinnon, 2002.
"Distributions of error correction tests for cointegration,"
Royal Economic Society, vol. 5(2), pages 285-318, 06.
- Neil R. Ericsson & James G. MacKinnon, 2000. "Distributions of Error Correction Tests for Cointegration," Econometric Society World Congress 2000 Contributed Papers 0561, Econometric Society.
- Neil R. Ericsson & James G. MacKinnon, 1999. "Distributions of error correction tests for cointegration," International Finance Discussion Papers 655, Board of Governors of the Federal Reserve System (U.S.).
- Peter Wickham, 1996. "Volatility of Oil Prices," IMF Working Papers 96/82, International Monetary Fund.
- 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.
- 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.
- A. M. Ulph & G. M. Folie, 1980. "Exhaustible Resources and Cartels: An Intertemporal Nash-Cournot Model," Canadian Journal of Economics, Canadian Economics Association, vol. 13(4), pages 645-58, November.
- Robert S. Pindyck, 2001. "The Dynamics of Commodity Spot and Futures Markets: A Primer," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 1-30.
- Pindyck, Robert S., 1990.
"Inventories and the short-run dynamics of commodity prices,"
3133-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Robert S. Pindyck, 1994. "Inventories and the Short-Run Dynamics of Commodity Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 141-159, Spring.
- Robert S. Pindyck, 1994. "Inventories and the Short-Run Dynamics of Commodity Prices," NBER Working Papers 3295, National Bureau of Economic Research, Inc.
- Barsky, Robert & Kilian, Lutz, 2004.
"Oil and the Macroeconomy Since the 1970s,"
CEPR Discussion Papers
4496, C.E.P.R. Discussion Papers.
- Sadorsky, Perry, 2002. "Time-varying risk premiums in petroleum futures prices," Energy Economics, Elsevier, vol. 24(6), pages 539-556, November.
- 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.
- Yu, Lean & Wang, Shouyang & Lai, Kin Keung, 2008. "Forecasting crude oil price with an EMD-based neural network ensemble learning paradigm," Energy Economics, Elsevier, vol. 30(5), pages 2623-2635, September.
- Ramcharran, Harri, 2002. "Oil production responses to price changes: an empirical application of the competitive model to OPEC and non-OPEC countries," Energy Economics, Elsevier, vol. 24(2), pages 97-106, March.
- Noureddine Krichene, 2006. "World Crude Oil Markets: Monetary Policy and the Recent Oil Shock," IMF Working Papers 06/62, International Monetary Fund.
- Griffin, James M, 1985. "OPEC Behavior: A Test of Alternative Hypotheses," American Economic Review, American Economic Association, vol. 75(5), pages 954-63, December.
- Bekiros, S. & Diks, C.G.H., 2007.
"The Relationship between Crude Oil Spot and Futures Prices: Cointegration, Linear and Nonlinear Causality,"
CeNDEF Working Papers
07-11, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Bekiros, Stelios D. & Diks, Cees G.H., 2008. "The relationship between crude oil spot and futures prices: Cointegration, linear and nonlinear causality," Energy Economics, Elsevier, vol. 30(5), pages 2673-2685, September.
- William D. Nordhaus, 1973. "The Allocation of Energy Resources," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 529-576.
- Regnier, Eva, 2007. "Oil and energy price volatility," Energy Economics, Elsevier, vol. 29(3), pages 405-427, May.
- van Amano, Robert A & Norden, Simon, 1998.
"Exchange Rates and Oil Prices,"
Review of International Economics,
Wiley Blackwell, vol. 6(4), pages 683-94, November.
- Farzin, Y. H., 2001. "The impact of oil price on additions to US proven reserves," Resource and Energy Economics, Elsevier, vol. 23(3), pages 271-292, July.
- Dees, Stephane & Karadeloglou, Pavlos & Kaufmann, Robert K. & Sanchez, Marcelo, 2007. "Modelling the world oil market: Assessment of a quarterly econometric model," Energy Policy, Elsevier, vol. 35(1), pages 178-191, January.
- Ye, Michael & Zyren, John & Shore, Joanne, 2005. "A monthly crude oil spot price forecasting model using relative inventories," International Journal of Forecasting, Elsevier, vol. 21(3), pages 491-501.
- 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.
- James D. Hamilton, 2000.
"What is an Oil Shock?,"
NBER Working Papers
7755, National Bureau of Economic Research, Inc.
- Noureddine Krichene, 2007. "An Oil and Gas Model," IMF Working Papers 07/135, International Monetary Fund.
- 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.
- Krichene, Noureddine, 2002. "World crude oil and natural gas: a demand and supply model," Energy Economics, Elsevier, vol. 24(6), pages 557-576, November.
- Ramcharran, Harri, 2001. "OPEC's production under fluctuating oil prices: further test of the target revenue theory," Energy Economics, Elsevier, vol. 23(6), pages 667-681, November.
- Gonzalo, Jesús, .
"Five alternative methods of estimating long-run equilibrium relationships,"
Open Access publications from Universidad Carlos III de Madrid
info:hdl:10016/731, Universidad Carlos III de Madrid.
- Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
- Kaufmann, Robert K. & Dees, Stephane & Gasteuil, Audrey & Mann, Michael, 2008. "Oil prices: The role of refinery utilization, futures markets and non-linearities," Energy Economics, Elsevier, vol. 30(5), pages 2609-2622, September.
- Kuper, Gerard H., 2002.
"Measuring oil price volatility,"
02C43, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
- Robert K. Kaufmann, Stephane Dees, Pavlos Karadeloglou and Marcelo Sanchez, 2004. "Does OPEC Matter? An Econometric Analysis of Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 67-90.
- Sadorsky, Perry, 2006. "Modeling and forecasting petroleum futures volatility," Energy Economics, Elsevier, vol. 28(4), pages 467-488, July.
- Bacon, Robert W, 1991. "Modelling the Price of Oil," Oxford Review of Economic Policy, Oxford University Press, vol. 7(2), pages 17-34, Summer.
- Cortazar, Gonzalo & Schwartz, Eduardo S., 2003. "Implementing a stochastic model for oil futures prices," Energy Economics, Elsevier, vol. 25(3), pages 215-238, May.
- 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.
- Yousefi, Ayoub & Wirjanto, Tony S., 2004. "The empirical role of the exchange rate on the crude-oil price formation," Energy Economics, Elsevier, vol. 26(5), pages 783-799, September.
- 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.
- Yang, C. W. & Hwang, M. J. & Huang, B. N., 2002. "An analysis of factors affecting price volatility of the US oil market," Energy Economics, Elsevier, vol. 24(2), pages 107-119, March.
- Fong, Wai Mun & See, Kim Hock, 2002. "A Markov switching model of the conditional volatility of crude oil futures prices," Energy Economics, Elsevier, vol. 24(1), pages 71-95, January.
- Jakobsson, Kristofer & Söderbergh, Bengt & Snowden, Simon & Li, Chuan-Zhong & Aleklett, Kjell, 2012. "Oil exploration and perceptions of scarcity: The fallacy of early success," Energy Economics, Elsevier, vol. 34(4), pages 1226-1233.
- Sueyoshi, Toshiyuki, 2010. "An agent-based approach equipped with game theory: Strategic collaboration among learning agents during a dynamic market change in the California electricity crisis," Energy Economics, Elsevier, vol. 32(5), pages 1009-1024, September.
- Vansteenkiste, Isabel, 2011. "What is driving oil futures prices? Fundamentals versus speculation," Working Paper Series 1371, European Central Bank.
- Harsem, Øistein & Eide, Arne & Heen, Knut, 2011. "Factors influencing future oil and gas prospects in the Arctic," Energy Policy, Elsevier, vol. 39(12), pages 8037-8045.
- Claudio Dicembrino & Pasquale Lucio Scandizzo, 2012. "The Fundamental and Speculative Components of the Oil Spot Price: A Real Option Value Approach," CEIS Research Paper 229, Tor Vergata University, CEIS, revised 18 Apr 2012.
- Robert Czudaj & Joscha Beckmann, 2012. "Spot and futures commodity markets and the unbiasedness hypothesis - evidence from a novel panel unit root test," Economics Bulletin, AccessEcon, vol. 32(2), pages 1695-1707.
- Ellen, Saskia ter & Zwinkels, Remco C.J., 2010. "Oil price dynamics: A behavioral finance approach with heterogeneous agents," Energy Economics, Elsevier, vol. 32(6), pages 1427-1434, November.
- Ekins, Paul & Pollitt, Hector & Barton, Jennifer & Blobel, Daniel, 2011. "The implications for households of environmental tax reform (ETR) in Europe," Ecological Economics, Elsevier, vol. 70(12), pages 2472-2485.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sophie Magnanou).
If references are entirely missing, you can add them using this form.