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The 2014 oil bust: Causes and consequences

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  • Tokic, Damir

Abstract

This article suggests that the 2014 oil price collapse was possibly triggered by the falling Euro versus the US Dollar. Specifically, the USD/EUR exchange rate likely adjusted to the sudden economic growth outlook divergence between the US and the EU, as evident by the relative short term interest rate spread measures, and triggered a “strong dollar” trade, which is negative for the crude oil prices. Thus, in our view, the 2014 oil price bust is another episode of oil price inefficiency, similar to the 2008 oil bubble. The key argument presented in this article is that, as long as there are temporary economic growth divergences between the US and the EU, the resulting exchange rate volatility is likely to create the pricing inefficiencies in crude oil, which in fact are mean-reverting, as the economic growth divergences eventually dissipate.

Suggested Citation

  • Tokic, Damir, 2015. "The 2014 oil bust: Causes and consequences," Energy Policy, Elsevier, vol. 85(C), pages 162-169.
  • Handle: RePEc:eee:enepol:v:85:y:2015:i:c:p:162-169
    DOI: 10.1016/j.enpol.2015.06.005
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    1. Kallis, Giorgos & Sager, Jalel, 2017. "Oil and the economy: A systematic review of the literature for ecological economists," Ecological Economics, Elsevier, vol. 131(C), pages 561-571.
    2. Fantazzini, Dean, 2016. "The oil price crash in 2014/15: Was there a (negative) financial bubble?," Energy Policy, Elsevier, vol. 96(C), pages 383-396.
    3. repec:eee:enepol:v:111:y:2017:i:c:p:166-178 is not listed on IDEAS
    4. Ansari, Dawud, 2017. "OPEC, Saudi Arabia, and the shale revolution: Insights from equilibrium modelling and oil politics," Energy Policy, Elsevier, vol. 111(C), pages 166-178.
    5. Gil-Alana, Luis A. & Gupta, Rangan & Olubusoye, Olusanya E. & Yaya, OlaOluwa S., 2016. "Time series analysis of persistence in crude oil price volatility across bull and bear regimes," Energy, Elsevier, vol. 109(C), pages 29-37.
    6. Khalifa, Ahmed A. & Alsarhan, Abdulwahab A. & Bertuccelli, Pietro, 2017. "Causes and consequences of energy price shocks on petroleum-based stock market using the spillover asymmetric multiplicative error model," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 307-314.
    7. repec:eee:ecmode:v:70:y:2018:i:c:p:97-114 is not listed on IDEAS
    8. Khan, Muhammad Imran & Yasmeen, Tabassam & Shakoor, Abdul & Khan, Niaz Bahadur & Muhammad, Riaz, 2017. "2014 oil plunge: Causes and impacts on renewable energy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 68(P1), pages 609-622.

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    Keywords

    Oil price; Collapse; Bubble; Exchange rates; The Euro;

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