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Physical Market Determinants of the Price of Crude Oil and the Market Premium

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Abstract

We analyze the physical, i.e. non financial, determinants of the real price of crude oil by means of an equilibrium correction model over the last two decades. We find that two cointegrating relations affect the change in prices: one refers to OPEC's cartel behavior attempting to control prices using its market power and quotas; the other to the coverage rate of expected future demand by OECD using inventory behaviours. We derive an equation for the change in oil prices which we use to assess the speculative elements of the early millennium price hike. We show that worries alien to the physical markets are the causes of the increase in oil prices and are able to quantify their impact.

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  • Chevillon, Guillaume & Rifflart, Christine, 2007. "Physical Market Determinants of the Price of Crude Oil and the Market Premium," ESSEC Working Papers DR 07020, ESSEC Research Center, ESSEC Business School.
  • Handle: RePEc:ebg:essewp:dr-07020
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    Cited by:

    1. Ellen, Saskia ter & Zwinkels, Remco C.J., 2010. "Oil price dynamics: A behavioral finance approach with heterogeneous agents," Energy Economics, Elsevier, pages 1427-1434.
    2. Aboura, Sofiane & Chevallier, Julien, 2013. "Leverage vs. feedback: Which Effect drives the oil market?," Finance Research Letters, Elsevier, pages 131-141.
    3. He, Kaijian & Yu, Lean & Lai, Kin Keung, 2012. "Crude oil price analysis and forecasting using wavelet decomposed ensemble model," Energy, Elsevier, vol. 46(1), pages 564-574.
    4. Koop, Gary & Tole, Lise, 2013. "Modeling the relationship between European carbon permits and certified emission reductions," Journal of Empirical Finance, Elsevier, pages 166-181.
    5. Sumit Ghosh & N. Sivakumar, 2015. "Beta Clustering of Impact of Crude-Oil Prices on the Indian Economy," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, pages 24-34.
    6. Biresselioglu, Mehmet Efe & Yelkenci, Tezer, 2016. "Scrutinizing the causality relationships between prices, production and consumption of fossil fuels: A panel data approach," Energy, Elsevier, vol. 102(C), pages 44-53.
    7. Claudio Dicembrino & Pasquale Lucio Scandizzo, 2012. "The Fundamental and Speculative Components of the Oil Spot Price: A Real Option Value Approach," CEIS Research Paper 229, Tor Vergata University, CEIS, revised 18 Apr 2012.
    8. Gábor Kátay, 2011. "Downward wage rigidity in Hungary," MNB Working Papers 2011/9, Magyar Nemzeti Bank (Central Bank of Hungary).
    9. Fan, Ying & Xu, Jin-Hua, 2011. "What has driven oil prices since 2000? A structural change perspective," Energy Economics, Elsevier, pages 1082-1094.
    10. Coleman, Les, 2012. "Explaining crude oil prices using fundamental measures," Energy Policy, Elsevier, vol. 40(C), pages 318-324.
    11. Robert Czudaj & Joscha Beckmann, 2012. "Spot and futures commodity markets and the unbiasedness hypothesis - evidence from a novel panel unit root test," Economics Bulletin, AccessEcon, vol. 32(2), pages 1695-1707.
    12. Kolodzeij, Marek & Kaufmann, Robert.K., 2014. "Oil demand shocks reconsidered: A cointegrated vector autoregression," Energy Economics, Elsevier, pages 33-40.
    13. Hache, Emmanuel & Lantz, Frédéric, 2013. "Speculative trading and oil price dynamic: A study of the WTI market," Energy Economics, Elsevier, pages 334-340.
    14. Jakobsson, Kristofer & Söderbergh, Bengt & Snowden, Simon & Li, Chuan-Zhong & Aleklett, Kjell, 2012. "Oil exploration and perceptions of scarcity: The fallacy of early success," Energy Economics, Elsevier, pages 1226-1233.
    15. Kaufmann, Robert K., 2016. "Price differences among crude oils: The private costs of supply disruptions," Energy Economics, Elsevier, pages 1-8.
    16. Tobi Olasojiand & Elijah Acquah-Andoh, 2016. "Evaluating The Short Run Effects Of U.S. Crude Oil Inventory Levels On Wti Crude Oil Price From 1993 - 2013," Eurasian Journal of Economics and Finance, Eurasian Publications, pages 64-84.
    17. Kaufmann, Robert K., 2011. "The role of market fundamentals and speculation in recent price changes for crude oil," Energy Policy, Elsevier, vol. 39(1), pages 105-115, January.
    18. Ai Han & Yanan He & Yongmiao Hong & Shouyang Wang, 2013. "Forecasting Interval-valued Crude Oil Prices via Autoregressive Conditional Interval Models," WISE Working Papers 2013-10-14, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    19. Zhao, Chunfu & Chen, Bin, 2014. "China’s oil security from the supply chain perspective: A review," Applied Energy, Elsevier, pages 269-279.
    20. Ekins, Paul & Pollitt, Hector & Barton, Jennifer & Blobel, Daniel, 2011. "The implications for households of environmental tax reform (ETR) in Europe," Ecological Economics, Elsevier, vol. 70(12), pages 2472-2485.
    21. Chevallier, Julien, 2010. "Modelling risk premia in CO2 allowances spot and futures prices," Economic Modelling, Elsevier, vol. 27(3), pages 717-729, May.
    22. Harsem, Øistein & Eide, Arne & Heen, Knut, 2011. "Factors influencing future oil and gas prospects in the Arctic," Energy Policy, Elsevier, vol. 39(12), pages 8037-8045.
    23. Sueyoshi, Toshiyuki, 2010. "An agent-based approach equipped with game theory: Strategic collaboration among learning agents during a dynamic market change in the California electricity crisis," Energy Economics, Elsevier, pages 1009-1024.
    24. Hahn, Warren J. & DiLellio, James A. & Dyer, James S., 2014. "What do market-calibrated stochastic processes indicate about the long-term price of crude oil?," Energy Economics, Elsevier, pages 212-221.
    25. Beckmann, Joscha & Belke, Ansgar & Czudaj, Robert, 2014. "Regime-dependent adjustment in energy spot and futures markets," Economic Modelling, Elsevier, vol. 40(C), pages 400-409.

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    Keywords

    Cointegration; Forecast; Market Premium; Oil Price;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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