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Recent Dynamics of Crude Oil Prices

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  • Noureddine Krichene
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    Abstract

    Crude oil prices have been on a run-up spree in recent years. Their dynamics were characterized by high volatility, high intensity jumps, and strong upward drift, indicating that oil markets were constantly out-of-equilibrium. An explanation of the oil price process in terms of the underlying fundamentals of oil markets and world economy was provided, viewing pressure on oil prices mainly as a result of rigid crude oil supply and an expanding world demand for crude oil. A change in the oil price process parameters would require a change in the underlying fundamentals. Market expectations, extracted from call and put option prices, anticipated no change, in the short term, in the underlying fundamentals. Markets expected oil prices to remain volatile and jumpy, and with higher probabilities, to rise, rather than fall, above the expected mean.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/299.

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    Length: 28
    Date of creation: 01 Dec 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/299

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    Keywords: Oil prices; Economic models; Energy; crude oil; oil markets; probability; skewness; oil demand; kurtosis; crude oil prices; characteristic function; probability density; crude oil price; equation; stochastic process; diffusion process; diffusion model; generating function; statistics; probabilities; oil futures; logarithm; martingale; world oil demand; descriptive statistics; random variable; equations; probability density function; minimization; stochastic differential equation; gamma distribution; stochastic processes; time series; maximum likelihood method; oil market report; probability value; parameter vector; probability distributions; oil supply; poisson process; probability distribution; forecasting; statistic; oil shock; oil market; integral; polynomial; standard deviation; characteristic functions; statistical data; econometrics; number of parameters; natural gas; finite variance; natural gas liquids; conditional expectation; crude oil options; simultaneous equation; crude oil markets; martingales; computation; statistical methods; million barrels per day; correlations; random variables; million barrels; oil shocks;

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    Cited by:
    1. AydIn, Levent & Acar, Mustafa, 2011. "Economic impact of oil price shocks on the Turkish economy in the coming decades: A dynamic CGE analysis," Energy Policy, Elsevier, vol. 39(3), pages 1722-1731, March.
    2. 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.

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