IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

What is behind the increase in oil prices? Analyzing oil consumption and supply relationship with oil price

  • Gallo, Andres
  • Mason, Paul
  • Shapiro, Steve
  • Fabritius, Michael

The continuing increases in oil prices have renewed the argument over the real culprits behind these movements. The growth in demand for oil in international markets, especially from the United States and China, is often identified as the main source of consumption pressure on prices, and thus the upward trend in oil prices. This paper uses unit root tests with two endogenous breaks to analyze the characteristics of oil prices, production, and consumption for several countries. By taking into account structural breaks, we find that many countries’ oil consumption and oil prices are stationary, while other countries are not. We also perform causality tests to determine the direction of any possible relationship between oil price and oil consumption and production. Our statistical analysis reveals that production variables cause oil prices, while oil prices tend to cause consumption. As a result, we claim that the blame for the recent fluctuations in oil prices is more appropriately associated with supply factors, not consumption influences.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0360544210003567
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Energy.

Volume (Year): 35 (2010)
Issue (Month): 10 ()
Pages: 4126-4141

as
in new window

Handle: RePEc:eee:energy:v:35:y:2010:i:10:p:4126-4141
Contact details of provider: Web page: http://www.journals.elsevier.com/energy

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. James D. Hamilton, 2000. "What is an Oil Shock?," NBER Working Papers 7755, National Bureau of Economic Research, Inc.
  2. Jeffrey A. Miron, 1990. "The Economics of Seasonal Cycles," NBER Working Papers 3522, National Bureau of Economic Research, Inc.
  3. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
  4. De Santis, Roberto A., 2003. "Crude oil price fluctuations and Saudi Arabia's behaviour," Energy Economics, Elsevier, vol. 25(2), pages 155-173, March.
  5. Huntington, Hillard G., 2004. "Shares, gaps and the economy's response to oil disruptions," Energy Economics, Elsevier, vol. 26(3), pages 415-424, May.
  6. Yang, C. W. & Hwang, M. J. & Huang, B. N., 2002. "An analysis of factors affecting price volatility of the US oil market," Energy Economics, Elsevier, vol. 24(2), pages 107-119, March.
  7. Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Universite de Montreal, Departement de sciences economiques.
  8. Leduc, Sylvain & Sill, Keith, 2004. "A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 781-808, May.
  9. Jan Bentzen, 2007. "Does OPEC influence crude oil prices? Testing for co-movements and causality between regional crude oil prices," Applied Economics, Taylor & Francis Journals, vol. 39(11), pages 1375-1385.
  10. Ben-David, D. & Lumsdaine, L.R. & Papell, D.H., 1996. "Unit Roots Postwar Slowdowns and Long-Run Growth: Evidence from Two Structural Breaks," Papers 33-96, Tel Aviv.
  11. Altinay, Galip & Karagol, Erdal, 2004. "Structural break, unit root, and the causality between energy consumption and GDP in Turkey," Energy Economics, Elsevier, vol. 26(6), pages 985-994, November.
  12. Paul Crompton & Yanrui Wu, 2004. "Energy Consumption in China: Past Trends and Future Directions," Economics Discussion / Working Papers 04-22, The University of Western Australia, Department of Economics.
  13. Hamilton, James D, 1988. "A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 593-617, June.
  14. Franses, Philip Hans & Paap, Richard, 2004. "Periodic Time Series Models," OUP Catalogue, Oxford University Press, number 9780199242030, December.
  15. Raymond, Jennie E & Rich, Robert W, 1997. "Erratum [Oil and the Macroeconomy: A Markov State-Switching Approach]," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 555, November.
  16. Hillard G. Huntington, 1998. "Crude Oil Prices and U.S. Economic Performance: Where Does the Asymmetry Reside?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 107-132.
  17. Cunado, Juncal & Perez de Gracia, Fernando, 2003. "Do oil price shocks matter? Evidence for some European countries," Energy Economics, Elsevier, vol. 25(2), pages 137-154, March.
  18. Wolde-Rufael, Yemane, 2009. "Energy consumption and economic growth: The experience of African countries revisited," Energy Economics, Elsevier, vol. 31(2), pages 217-224.
  19. Juncal Cunado & Fernando Pérez de Gracia, 2004. "Oil Prices, Economic Activity and Inflation: Evidence for Some Asian Countries," Faculty Working Papers 06/04, School of Economics and Business Administration, University of Navarra.
  20. Yash P. Mehra & Jon D. Petersen, 2005. "Oil prices and consumer spending," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 51-70.
  21. Hooker, Mark A, 2002. "Are Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 540-61, May.
  22. Lee, Chien-Chiang & Chang, Chun-Ping, 2008. "Unemployment hysteresis in OECD countries: Centurial time series evidence with structural breaks," Economic Modelling, Elsevier, vol. 25(2), pages 312-325, March.
  23. Oh, Wankeun & Lee, Kihoon, 2004. "Causal relationship between energy consumption and GDP revisited: the case of Korea 1970-1999," Energy Economics, Elsevier, vol. 26(1), pages 51-59, January.
  24. Lee, Chien-Chiang, 2005. "Energy consumption and GDP in developing countries: A cointegrated panel analysis," Energy Economics, Elsevier, vol. 27(3), pages 415-427, May.
  25. Papapetrou, Evangelia, 2001. "Oil price shocks, stock market, economic activity and employment in Greece," Energy Economics, Elsevier, vol. 23(5), pages 511-532, September.
  26. Vogelsang, T.J. & Perron, P., 1994. "Additional Tests for a Unit Root Allowing for a Break in the Trend Function at an Unknown Time," Cahiers de recherche 9422, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  27. Kim, In-Moo & Loungani, Prakash, 1992. "The role of energy in real business cycle models," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 173-189, April.
  28. Hylleberg, S. & Engle, R. F. & Granger, C. W. J. & Yoo, B. S., 1990. "Seasonal integration and cointegration," Journal of Econometrics, Elsevier, vol. 44(1-2), pages 215-238.
  29. Chien-Chiang Lee & Chun-Ping Chang, 2008. "Trend stationary of inflation rates: evidence from LM unit root testing with a long span of historical data," Applied Economics, Taylor & Francis Journals, vol. 40(19), pages 2523-2536.
  30. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
  31. Chang, Chun-Ping & Lee, Chien-Chiang, 2008. "Are per capita carbon dioxide emissions converging among industrialized countries? New time series evidence with structural breaks," Environment and Development Economics, Cambridge University Press, vol. 13(04), pages 497-515, August.
  32. Klaus Matthies, 2004. "Asian demand pushes up commodity prices," Intereconomics- Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 39(2), pages 109-112, March.
  33. Robert K. Kaufmann, Stephane Dees, Pavlos Karadeloglou and Marcelo Sanchez, 2004. "Does OPEC Matter? An Econometric Analysis of Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 67-90.
  34. Gori, F. & Ludovisi, D. & Cerritelli, P.F., 2007. "Forecast of oil price and consumption in the short term under three scenarios: Parabolic, linear and chaotic behaviour," Energy, Elsevier, vol. 32(7), pages 1291-1296.
  35. Darrat, Ali F & Gilley, Otis W & Meyer, Don J, 1996. "US Oil Consumption, Oil Prices, and the Macroeconomy," Empirical Economics, Springer, vol. 21(3), pages 317-34.
  36. Asche, Frank & Gjolberg, Ole & Volker, Teresa, 2003. "Price relationships in the petroleum market: an analysis of crude oil and refined product prices," Energy Economics, Elsevier, vol. 25(3), pages 289-301, May.
  37. Lee, Chien-Chiang & Chang, Chun-Ping, 2005. "Structural breaks, energy consumption, and economic growth revisited: Evidence from Taiwan," Energy Economics, Elsevier, vol. 27(6), pages 857-872, November.
  38. Hylleberg, Svend & Jorgensen, Clara & Sorensen, Nils Karl, 1993. "Seasonality in Macroeconomic Time Series," Empirical Economics, Springer, vol. 18(2), pages 321-35.
  39. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
  40. Chiou, Jer-Shiou & Lee, Yen-Hsien, 2009. "Jump dynamics and volatility: Oil and the stock markets," Energy, Elsevier, vol. 34(6), pages 788-796.
  41. Philip Hans Franses & Timothy J. Vogelsang, 1998. "On Seasonal Cycles, Unit Roots, And Mean Shifts," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 231-240, May.
  42. Lanza, Alessandro & Manera, Matteo & Giovannini, Massimo, 2005. "Modeling and forecasting cointegrated relationships among heavy oil and product prices," Energy Economics, Elsevier, vol. 27(6), pages 831-848, November.
  43. Askari, Hossein & Krichene, Noureddine, 2010. "An oil demand and supply model incorporating monetary policy," Energy, Elsevier, vol. 35(5), pages 2013-2021.
  44. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
  45. Seema Narayan & Russell Smyth, 2008. "Unit roots and structural breaks in PNG macroeconomic time series," International Journal of Social Economics, Emerald Group Publishing, vol. 35(12), pages 963-984, October.
  46. Fong, Wai Mun & See, Kim Hock, 2002. "A Markov switching model of the conditional volatility of crude oil futures prices," Energy Economics, Elsevier, vol. 24(1), pages 71-95, January.
  47. Raymond, Jennie E & Rich, Robert W, 1997. "Oil and the Macroeconomy: A Markov State-Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 193-213, May.
  48. Jabir, Imad, 2001. "The shift in US oil demand and its impact on OPEC's market share," Energy Economics, Elsevier, vol. 23(6), pages 659-666, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:energy:v:35:y:2010:i:10:p:4126-4141. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.