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Crude awakening: behind the surge in oil prices

Author

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  • Stephen P. A. Brown
  • Raghav Virmani
  • Richard Alm

Abstract

The first few months of 2008 saw crude oil prices breach one barrier after another. They topped $100 a barrel for the first time on Feb. 19, then rose past $103.76 about two weeks later, surpassing the previous inflation-adjusted peak, established in 1980. In April and early May, oil prices pushed past $110 and then $120 a barrel and beyond. ; These milestones reflect a new era in oil markets. After the tumult of the early 1980s, prices remained relatively tame for two decades - in both real and nominal terms. This long stretch of stability ended in 2004, when oil topped $40 a barrel for the first time, then embarked on a steep climb that continued into this year. ; Modern economies run on oil, so it's important to understand how recent years - with their surging prices - differ from the preceding two decades. A good starting point is strong demand, which has pushed world oil markets close to capacity. New supplies haven't kept up with this demand, fueling expectations that oil markets will remain tight for the foreseeable future. A weakening dollar has put upward pressure on the price of a commodity that trades in the U.S. currency. And because a large share of oil production takes place in politically unstable regions, fears of supply disruptions loom over markets. ; These factors have fed the steady, sometimes swift rise of oil prices in recent years. Their persistence suggests the days of relatively cheap oil are over and the global economy faces a future of high energy prices. How they play out will shape oil markets - and determine prices - for years to come.

Suggested Citation

  • Stephen P. A. Brown & Raghav Virmani & Richard Alm, 2008. "Crude awakening: behind the surge in oil prices," Economic Letter, Federal Reserve Bank of Dallas, vol. 3(may).
  • Handle: RePEc:fip:feddel:y:2008:i:may:n:v.3no.5
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    File URL: http://dallasfed.org/assets/documents/research/eclett/2008/el0805.pdf
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    Cited by:

    1. Reitz, Stefan & Rülke, Jan-Christoph & Stadtmann, Georg, 2012. "Nonlinear expectations in speculative markets: Evidence from the ECB survey of professional forecasters," Discussion Papers 311, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    2. Reitz Stefan & Rülke Jan-Christoph & Stadtmann Georg, 2010. "Regressive Oil Price Expectations Toward More Fundamental Values of the Oil Price," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(4), pages 454-466, August.
    3. Orlowski, Lucjan T, 2008. "Stages of the 2007/2008 Global Financial Crisis: Is There a Wandering Asset-Price Bubble?," MPRA Paper 12696, University Library of Munich, Germany.
    4. Phil Briggs & Carly Harker & Tim Ng & Aidan Yao, 2011. "Fluctuations in the international prices of oil, dairy products, beef and lamb between 2000 and 2008: A review of market-specific demand and supply factors," Reserve Bank of New Zealand Discussion Paper Series DP2011/02, Reserve Bank of New Zealand.
    5. Reitz, Stefan & Rülke, Jan-Christoph & Stadtmann, Georg, 2012. "Nonlinear expectations in speculative markets – Evidence from the ECB survey of professional forecasters," Journal of Economic Dynamics and Control, Elsevier, vol. 36(9), pages 1349-1363.
    6. Lucjan T. Orlowski, 2008. "Stages of the Ongoing Global Financial Crisis: Is There a Wandering Asset-Price Bubble?," CASE Network Studies and Analyses 0372, CASE-Center for Social and Economic Research.
    7. Reitz, Stefan & Rülke, Jan-Christoph & Stadtmann, Georg, 2009. "Are oil price forecasters finally right? Regressive expectations toward more fundamental values of the oil price," Discussion Paper Series 1: Economic Studies 2009,32, Deutsche Bundesbank.
    8. Filip Novotný, 2012. "The Link Between the Brent Crude Oil Price and the US Dollar Exchange Rate," Prague Economic Papers, University of Economics, Prague, pages 220-232.
    9. repec:eee:eneeco:v:63:y:2017:i:c:p:272-287 is not listed on IDEAS
    10. Olivier Gervais & Ilan Kolet, 2009. "The Outlook for the Global Supply of Oil: Running on Faith?," Discussion Papers 09-9, Bank of Canada.
    11. Orlowski, Lucjan T., 2008. "Stages of the Ongoing Global Financial Crisis: Is There a Wandering Asset Bubble?," IWH Discussion Papers 11/2008, Halle Institute for Economic Research (IWH).

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