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What can be said about the rise and fall in oil prices?

Author

Listed:
  • Saporta, Victoria

    () (Bank of England)

  • Trott, Matt

    () (Bank of England)

  • Tudela, Merxe

    () (Bank of England)

Abstract

The price of oil rose steadily between the middle of 2003 and the end of 2007, rose further and more rapidly until mid-2008 and fell sharply until the end of that year. Commentators agree that a significant part of the increase in the oil price over that period was due to rapid demand growth from emerging markets, but there are substantial differences of view about the relative importance of other factors, and limited work thus far in explaining the large fall in oil prices in the second half of 2008. The purpose of this article is to analyse the main explanations for the rise and fall in oil prices in the five years until the end of 2008. It argues that shocks to oil demand and supply, coupled with the institutional factors of the oil market, are qualitatively consistent with the direction of price movements, although the magnitude of the rise and subsequent fall during 2008 is more difficult to justify. The available empirical evidence suggests that financial flows into oil markets have not been an important factor over the period as a whole. Nonetheless, one cannot rule out the possibility that some part of the sharp rise and fall in the oil price in 2008 might have had some of the characteristics of an asset price bubble.

Suggested Citation

  • Saporta, Victoria & Trott, Matt & Tudela, Merxe, 2009. "What can be said about the rise and fall in oil prices?," Bank of England Quarterly Bulletin, Bank of England, vol. 49(3), pages 215-225.
  • Handle: RePEc:boe:qbullt:0004
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    References listed on IDEAS

    as
    1. Emmanuel Farhi & Ricardo Caballero & Pierre-Olivier Gourinchas, "undated". "Financial Crash, Commodity Prices and Global Imbalances," Working Paper 20933, Harvard University OpenScholar.
    2. Zeng Tian & Swanson Norman R., 1998. "Predictive Evaluation of Econometric Forecasting Models in Commodity Futures Markets," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(4), pages 1-21, January.
    3. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
    4. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39, pages 137-137.
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    Cited by:

    1. Julien Chevallier, 2013. "Price relationships in crude oil futures: new evidence from CFTC disaggregated data," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(2), pages 133-170, April.
    2. repec:eee:eneeco:v:64:y:2017:i:c:p:494-510 is not listed on IDEAS
    3. Astley, Mark & Giese, Julia & Hume, Michael & Kubelec, Chris, 2009. "Global imbalances and the financial crisis," Bank of England Quarterly Bulletin, Bank of England, vol. 49(3), pages 178-190.
    4. Nixon, Dan & Smith, Tom, 2012. "What can the oil futures curve tell us about the outlook for oil prices?," Bank of England Quarterly Bulletin, Bank of England, vol. 52(1), pages 39-47.

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