IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2008-133.html
   My bibliography  Save this paper

Crude Oil Prices: Trends and Forecast

Author

Listed:
  • Mr. Noureddine Krichene

Abstract

Following record low interest rates and fast depreciating U.S. dollar, crude oil prices became under rising pressure and seemed boundless. Oil price process parameters changed drastically in 2003M5-2007M10 toward consistently rising prices. Short-term forecasting would imply persistence of observed trends, as market fundamentals and underlying monetary policies were supportive of these trends. Market expectations derived from option prices anticipated further surge in oil prices and allowed significant probability for right tail events. Given explosive trends in other commodities prices, depreciating currencies, and weakening financial conditions, recent trends in oil prices might not persist further without triggering world economic recession, regressive oil supply, as oil producers became wary about inflation. Restoring stable oil markets, through restraining monetary policy, is essential for durable growth and price stability.

Suggested Citation

  • Mr. Noureddine Krichene, 2008. "Crude Oil Prices: Trends and Forecast," IMF Working Papers 2008/133, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/133
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=21965
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Dilip B. Madan & Peter P. Carr & Eric C. Chang, 1998. "The Variance Gamma Process and Option Pricing," Review of Finance, European Finance Association, vol. 2(1), pages 79-105.
    2. Mr. Noureddine Krichene, 2007. "An Oil and Gas Model," IMF Working Papers 2007/135, International Monetary Fund.
    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.
    4. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
    5. Mr. Noureddine Krichene, 2006. "World Crude Oil Markets: Monetary Policy and the Recent Oil Shock," IMF Working Papers 2006/062, International Monetary Fund.
    6. Eberlein, Ernst & Keller, Ulrich & Prause, Karsten, 1998. "New Insights into Smile, Mispricing, and Value at Risk: The Hyperbolic Model," The Journal of Business, University of Chicago Press, vol. 71(3), pages 371-405, July.
    7. Donald W. Jones, Paul N. Leiby and Inja K. Paik, 2004. "Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-32.
    8. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
    9. Louis O. Scott, 1997. "Pricing Stock Options in a Jump‐Diffusion Model with Stochastic Volatility and Interest Rates: Applications of Fourier Inversion Methods," Mathematical Finance, Wiley Blackwell, vol. 7(4), pages 413-426, October.
    10. Benoit Mandelbrot, 1963. "New Methods in Statistical Economics," Journal of Political Economy, University of Chicago Press, vol. 71(5), pages 421-421.
    11. Kiseok Lee & Shawn Ni & Ronald A. Ratti, 1995. "Oil Shocks and the Macroeconomy: The Role of Price Variability," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 39-56.
    12. Peter Carr & Hélyette Geman & Dilip B. Madan & Marc Yor, 2003. "Stochastic Volatility for Lévy Processes," Mathematical Finance, Wiley Blackwell, vol. 13(3), pages 345-382, July.
    13. 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 265-286, April.
    14. Mr. Noureddine Krichene, 2005. "A Simultaneous Equations Model for World Crude Oil and Natural Gas Markets," IMF Working Papers 2005/032, International Monetary Fund.
    15. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    16. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-155, January.
    17. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    18. repec:dau:papers:123456789/1392 is not listed on IDEAS
    19. Ole E. Barndorff-Nielsen, 1997. "Processes of normal inverse Gaussian type," Finance and Stochastics, Springer, vol. 2(1), pages 41-68.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nazlioglu, Saban & Erdem, Cumhur & Soytas, Ugur, 2013. "Volatility spillover between oil and agricultural commodity markets," Energy Economics, Elsevier, vol. 36(C), pages 658-665.
    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.
    3. Zhan-Ming Chen & Liyuan Wang & Xiao-Bing Zhang & Xinye Zheng, 2019. "The Co-Movement and Asymmetry between Energy and Grain Prices: Evidence from the Crude Oil and Corn Markets," Energies, MDPI, vol. 12(7), pages 1-18, April.
    4. Gu, Yewen & Wallace, Stein W. & Wang, Xin, 2016. "Integrated maritime bunker management with stochastic fuel prices and new emission regulations," Discussion Papers 2016/13, Norwegian School of Economics, Department of Business and Management Science.
    5. Yewen Gu & Stein W. Wallace & Xin Wang, 2017. "The Impact of Bunker Risk Management on CO2 Emissions in Maritime Transportation Under ECA Regulation," Springer Optimization and Its Applications, in: Didem Cinar & Konstantinos Gakis & Panos M. Pardalos (ed.), Sustainable Logistics and Transportation, pages 199-224, Springer.
    6. Hernández, Juan Antonio & Benito, Rosa Marı´a & Losada, Juan Carlos, 2012. "An adaptive stochastic model for financial markets," Chaos, Solitons & Fractals, Elsevier, vol. 45(6), pages 899-908.
    7. Wang, Shuang & Wallace, Stein W. & Lu, Jing & Gu, Yewen, 2020. "Handling financial risks in crude oil imports: Taking into account crude oil prices as well as country and transportation risks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Askari, Hossein & Krichene, Noureddine, 2010. "The impact of monetary policy on oil process parameters and market expectations," Global Finance Journal, Elsevier, vol. 21(2), pages 186-200.
    2. Mr. Noureddine Krichene, 2006. "Recent Dynamics of Crude Oil Prices," IMF Working Papers 2006/299, International Monetary Fund.
    3. Jingzhi Huang & Liuren Wu, 2004. "Specification Analysis of Option Pricing Models Based on Time- Changed Levy Processes," Finance 0401002, University Library of Munich, Germany.
    4. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    5. Carr, Peter & Wu, Liuren, 2004. "Time-changed Levy processes and option pricing," Journal of Financial Economics, Elsevier, vol. 71(1), pages 113-141, January.
    6. Cui, Zhenyu & Lars Kirkby, J. & Nguyen, Duy, 2019. "A general framework for time-changed Markov processes and applications," European Journal of Operational Research, Elsevier, vol. 273(2), pages 785-800.
    7. Claudia Yeap & Simon S Kwok & S T Boris Choy, 2018. "A Flexible Generalized Hyperbolic Option Pricing Model and Its Special Cases," Journal of Financial Econometrics, Oxford University Press, vol. 16(3), pages 425-460.
    8. Askari, Hossein & Krichene, Noureddine, 2008. "Oil price dynamics (2002-2006)," Energy Economics, Elsevier, vol. 30(5), pages 2134-2153, September.
    9. Awerbuch, Shimon & Sauter, Raphael, 2006. "Exploiting the oil-GDP effect to support renewables deployment," Energy Policy, Elsevier, vol. 34(17), pages 2805-2819, November.
    10. Yeap, Claudia & Kwok, Simon S. & Choy, S. T. Boris, 2016. "A Flexible Generalised Hyperbolic Option Pricing Model and its Special Cases," Working Papers 2016-14, University of Sydney, School of Economics.
    11. Filis, George & Degiannakis, Stavros & Floros, Christos, 2011. "Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 152-164, June.
    12. Kyritsis, Evangelos & Serletis, Apostolos, 2018. "The zero lower bound and market spillovers: Evidence from the G7 and Norway," Research in International Business and Finance, Elsevier, vol. 44(C), pages 100-123.
    13. Martijn Pistorius & Johannes Stolte, 2012. "Fast computation of vanilla prices in time-changed models and implied volatilities using rational approximations," Papers 1203.6899, arXiv.org.
    14. Geman, Helyette, 2002. "Pure jump Levy processes for asset price modelling," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1297-1316, July.
    15. Engemann, Kristie M. & Kliesen, Kevin L. & Owyang, Michael T., 2011. "Do Oil Shocks Drive Business Cycles? Some U.S. And International Evidence," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 498-517, November.
    16. Shuang Li & Yanli Zhou & Yonghong Wu & Xiangyu Ge, 2017. "Equilibrium approach of asset and option pricing under Lévy process and stochastic volatility," Australian Journal of Management, Australian School of Business, vol. 42(2), pages 276-295, May.
    17. repec:dau:papers:123456789/1392 is not listed on IDEAS
    18. Park, Jungwook & Ratti, Ronald A., 2008. "Oil price shocks and stock markets in the U.S. and 13 European countries," Energy Economics, Elsevier, vol. 30(5), pages 2587-2608, September.
    19. E. Nicolato & D. Sloth, 2014. "Risk adjustments of option prices under time-changed dynamics," Quantitative Finance, Taylor & Francis Journals, vol. 14(1), pages 125-141, January.
    20. Jaime Casassus & Freddy Higuera, 2013. "The Economic Impact of Oil on Industry Portfolios," Documentos de Trabajo 433, Instituto de Economia. Pontificia Universidad Católica de Chile..
    21. Lutz Kilian, 2009. "Pitfalls in Estimating Asymmetric Effects of Energy Price Shocks," 2009 Meeting Papers 473, Society for Economic Dynamics.

    More about this item

    Keywords

    WP;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2008/133. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.