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Moody Oil - What is Driving the Crude Oil Price?

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    Abstract

    The unparalleled surge of the crude oil price after 2003 has triggered a heated scientific and public debate about its ultimate causes. Unexpected demand growth particularly from emerging economies appears to be the most prominently supported reason among academics. We study the price dynamics after 2003 in the global crude oil market using a structural VAR model. We account for structural breaks and approximate market expectations using a time series for media sentiment in order to contribute to the existing literature. We and that forward-looking demand activities rather than demand arising from current needs have played an important role for the run-up in the price of crude oil after 2003. We additionally and that emerging economies have not majorly contributed to the price surge

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    Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 12/168.

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    Length: 35 pages
    Date of creation: Oct 2012
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    Handle: RePEc:eth:wpswif:12-168

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    Keywords: Oil Price; Spot Market; Futures Market; Fundamentals; Speculation; Financialization;

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    1. Kaufmann, Robert K., 2011. "The role of market fundamentals and speculation in recent price changes for crude oil," Energy Policy, Elsevier, vol. 39(1), pages 105-115, January.
    2. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    3. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-69, June.
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    7. Hamilton, James D & Herrera, Ana Maria, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 265-86, April.
    8. James D. Hamilton, 2008. "Understanding Crude Oil Prices," NBER Working Papers 14492, National Bureau of Economic Research, Inc.
    9. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    10. Alquist, Ron & Kilian, Lutz, 2007. "What Do We Learn from the Price of Crude Oil Futures?," CEPR Discussion Papers 6548, C.E.P.R. Discussion Papers.
    11. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    12. Kilian, Lutz & Murphy, Dan, 2010. "The Role of Inventories and Speculative Trading in the Global Market for Crude Oil," CEPR Discussion Papers 7753, C.E.P.R. Discussion Papers.
    13. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    14. Fan, Ying & Xu, Jin-Hua, 2011. "What has driven oil prices since 2000? A structural change perspective," Energy Economics, Elsevier, vol. 33(6), pages 1082-1094.
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