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Explaining the so-called "price premium" in oil markets

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  • Antonio Merino
  • Alvaro Ortiz

Abstract

This paper explores the information content of several variables on the so-called "oil price premium over fundamentals". We define this premium as the difference between the market oil price and the estimated price consistent with the OECD's relative industry stock level. By using Granger causality tests and extended regressions we test the systematic ability of a broad set of variables to explain the premium. We find that speculation in the oil market - measured by non-commercial long positions - can improve the traditional model, reducing the premium significantly during some parts of the sample. Copyright 2005 Organization of the Petroleum Exporting Countries.

Suggested Citation

  • Antonio Merino & Alvaro Ortiz, 2005. "Explaining the so-called "price premium" in oil markets," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 29(2), pages 133-152, June.
    • Handle: RePEc:bla:opecrv:v:29:y:2005:i:2:p:133-152
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    Citations

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    Cited by:

    1. Shalizi, Zmarak, 2007. "Energy and emissions : local and global effects of the rise of China and India," Policy Research Working Paper Series 4209, The World Bank.
    2. Cavalcante, Mileno, 2010. "An Analysis of the relationship between WTI term structure and oil market fundamentals in 2002-2009," MPRA Paper 24263, University Library of Munich, Germany.
    3. Ortiz-Cruz, Alejandro & Rodriguez, Eduardo & Ibarra-Valdez, Carlos & Alvarez-Ramirez, Jose, 2012. "Efficiency of crude oil markets: Evidences from informational entropy analysis," Energy Policy, Elsevier, vol. 41(C), pages 365-373.
    4. Frankel, Jeffrey A., 2014. "Effects of speculation and interest rates in a “carry trade” model of commodity prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 88-112.
    5. 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.
    6. repec:ipg:wpaper:2014-421 is not listed on IDEAS
    7. 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.
    8. Matteo Manera & Chiara Longo & Anil Markandya & Elisa Scarpa, 2007. "Evaluating the Empirical Performance of Alternative Econometric Models for Oil Price Forecasting," Working Papers 2007.4, Fondazione Eni Enrico Mattei.
    9. repec:eee:eneeco:v:69:y:2018:i:c:p:42-58 is not listed on IDEAS
    10. Giliola Frey & Matteo Manera & Anil Markandya & Elisa Scarpa, 2009. "Econometric Models for Oil Price Forecasting: A Critical Survey," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 10(1), pages 29-44, April.
    11. repec:spr:eurasi:v:7:y:2017:i:3:d:10.1007_s40821-016-0058-0 is not listed on IDEAS
    12. repec:spr:empeco:v:53:y:2017:i:3:d:10.1007_s00181-016-1162-9 is not listed on IDEAS
    13. Matteo Manera & Chiara Longo & Anil Markandya & Elisa Scarpa, 2007. "Evaluating the Empirical Performance of Alternative Econometric Models for Oil Price Forecasting," Working Papers 2007.4, Fondazione Eni Enrico Mattei.
    14. Martina, Esteban & Rodriguez, Eduardo & Escarela-Perez, Rafael & Alvarez-Ramirez, Jose, 2011. "Multiscale entropy analysis of crude oil price dynamics," Energy Economics, Elsevier, vol. 33(5), pages 936-947, September.
    15. de Souza e Silva, Edmundo G. & Legey, Luiz F.L. & de Souza e Silva, Edmundo A., 2010. "Forecasting oil price trends using wavelets and hidden Markov models," Energy Economics, Elsevier, vol. 32(6), pages 1507-1519, November.
    16. Antonio Merino & Rebeca Albacete, 2010. "Econometric modelling for short-term oil price forecasting," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 34(1), pages 25-41, March.
    17. He, Yanan & Wang, Shouyang & Lai, Kin Keung, 2010. "Global economic activity and crude oil prices: A cointegration analysis," Energy Economics, Elsevier, vol. 32(4), pages 868-876, July.

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