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Demand effects and speculation in oil markets: Theory and evidence

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  • Dvir, Eyal
  • Rogoff, Kenneth

Abstract

We present evidence showing the existence of stable cointegrating vectors connecting four important variables in the U.S. and global oil markets: oil production, stocks of crude oil, the real price of oil, and broad measures of income. Our data are monthly, and go back to the 1930s, split into sub-samples which correspond to periods before and after the 1973 crisis. We further show that the cointegrating vectors found in the data accord well with an extended commodity storage model which allows for demand growth dynamics and for supply regimes. Specifically, inventories and price move in opposite directions when supply is flexible, but the relationship reverses so that they comove when supply is inflexible.

Suggested Citation

  • Dvir, Eyal & Rogoff, Kenneth, 2014. "Demand effects and speculation in oil markets: Theory and evidence," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 113-128.
    • Handle: RePEc:eee:jimfin:v:42:y:2014:i:c:p:113-128
    DOI: 10.1016/j.jimonfin.2013.08.007
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