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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 () (ESSEC Business School)
Rifflart, Christine () (Sciences-Po Center for Economic Research (OFCE) and National Political Science Foundation)

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Abstract

We 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.

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Publisher Info
Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 07020.

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Length: 24 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:ebg:essewp:dr-07020

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Related research
Keywords: Cointegration Forecast Market Premium Oil Price

Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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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.
    Other versions:
  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!]
    Other versions:
  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. Hendry, David F., 1997. "On congruent econometric relations : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47, pages 163-190, December. [Downloadable!] (restricted)
  6. 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)
  7. 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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  8. 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)
  9. Kuper, Gerard H., 2002. "Measuring oil price volatility," CCSO Working Papers 200208, University of Groningen, CCSO Centre for Economic Research. [Downloadable!]
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  10. 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)
  11. 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)
  12. 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)
  13. 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)
  14. 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)
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