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On Oil Price Shocks: The Role of Storage

Author

Listed:
  • Deren Unalmis
  • Ibrahim Unalmis
  • Derya Filiz Unsal

Abstract

Building on recent work on the role of speculation and inventories in oil markets, the paper embeds a competitive oil storage model within a DSGE model of the U.S. economy. This enables us to formally analyze the impact of a (speculative) storage demand shock and to assess how the effects of various demand and supply shocks change in the presence of oil storage facility. The paper finds that business-cycle-driven oil demand shocks are the most important drivers of U.S. oil price fluctuations during 1982–2007. Disregarding the storage facility in the model causes a considerable upward bias in the estimated role of oil supply shocks in driving oil price fluctuations. The results also confirm that a change in the composition of shocks helps explain the resilience of the macroeconomic environment to the oil price surge after 2003. Finally, speculative storage is shown to have a mitigating or amplifying role depending on the nature of the shock.

Suggested Citation

  • Deren Unalmis & Ibrahim Unalmis & Derya Filiz Unsal, 2012. "On Oil Price Shocks: The Role of Storage," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(4), pages 505-532, December.
  • Handle: RePEc:pal:imfecr:v:60:y:2012:i:4:p:505-532
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    References listed on IDEAS

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    Cited by:

    1. Kilian, Lutz & Lee, Thomas K., 2014. "Quantifying the speculative component in the real price of oil: The role of global oil inventories," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 71-87.
    2. Christiane Baumeister & Lutz Kilian, 2014. "Do oil price increases cause higher food prices?," Economic Policy, CEPR;CES;MSH, vol. 29(80), pages 691-747, October.
    3. Tumen, Semih & Unalmis, Deren & Unalmis, Ibrahim & Unsal, D. Filiz, 2016. "Taxing fossil fuels under speculative storage," Energy Economics, Elsevier, vol. 53(C), pages 64-75.
    4. Riggi, Marianna & Venditti, Fabrizio, 2015. "The time varying effect of oil price shocks on euro-area exports," Journal of Economic Dynamics and Control, Elsevier, vol. 59(C), pages 75-94.
    5. Ron Alquist & Olivier Coibion, 2014. "Commodity-Price Comovement and Global Economic Activity," NBER Working Papers 20003, National Bureau of Economic Research, Inc.
    6. Sylvain Leduc & Kevin Moran & Robert J. Vigfusson, 2016. "Learning in the Oil Futures Markets: Evidence and Macroeconomic Implications," CIRANO Working Papers 2016s-53, CIRANO.
    7. Ron Alquist & Olivier Coibion, 2013. "The Comovement in Commodity Prices; Sources and Implications," IMF Working Papers 13/140, International Monetary Fund.

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