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Betting on Black Gold: Oil Speculation and U.S. Inflation (2020–2022)

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  • Carlotta Breman
  • Servaas Storm

Abstract

Sharp increases in systemically important crude oil prices have been a major cause of the recent surge in the inflation rate in the U.S. This paper investigates the extent to which the increase in oil prices can be attributed to excessive speculation in the oil futures market. Our analysis suggests that excessive speculation in the crude oil market has been responsible for 24%–48% of the increase in the WTI crude oil price during October 2020–June 2022. These estimates translate into an oil price increase of around $18-$36 per barrel and an increase in the U.S. PCE inflation rate by circa 0.75–1.5% points during the same period. We complement the analysis with an empirical investigation of the crude oil market, which shows that (speculative) long noncommercial open-interest positions in oil futures have increased considerably relative to short noncommercial positions. We further find that higher futures prices for crude oil “Granger-cause” oil spot prices, the futures prices of corn and soybeans and the fertilizer price. These econometric results show that oil speculators have to be held accountable for not just raising oil prices, but also driving up food commodity prices. We finally discuss measures to clamp down on excessive speculation in oil in order to eliminate its systemically adverse consequences for the U.S. economy.

Suggested Citation

  • Carlotta Breman & Servaas Storm, 2023. "Betting on Black Gold: Oil Speculation and U.S. Inflation (2020–2022)," International Journal of Political Economy, Taylor & Francis Journals, vol. 52(2), pages 153-180, April.
  • Handle: RePEc:mes:ijpoec:v:52:y:2023:i:2:p:153-180
    DOI: 10.1080/08911916.2023.2238565
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    Cited by:

    1. Nikolaos A. Kyriazis, 2024. "Food Inflation Examination through the Dynamic Nexus between Olive Oil and Substitutes," Economies, MDPI, vol. 12(3), pages 1-13, February.
    2. Michalis Nikiforos & Simon Grothe & Jan David Weber, 2024. "Markups, profit shares, and cost-push-profit-led inflation," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 33(2), pages 342-362.
    3. Servaas Storm, 2023. "Profit inflation is real," PSL Quarterly Review, Economia civile, vol. 76(306), pages 243-259.

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