Role of Structural Shocks on Fluctuations of Crude Oil Prices

Document Type : Research Paper

Authors

1 -Ph.D. Candidate of Oil and Gas Economics, Allameh Tabataba'i University

2 Associate Professor of Mathematics, Allameh Tabataba'i University

3 Associate Professor of Economics, Allameh Tabataba'i University

Abstract

The drastic oil price fluctuations in recent years have made researchers and policymakers curious about the role of each structural shock in the Variability of crude oil prices. In this study, fluctuations of WTI & ORB prices are analyzed in the form of a structural vector auto regression model (SVAR) over the period from 2006 to 2018. Based on historical decomposition of WIT price, fluctuations of crude oil price in 2008 are mainly due to a combination of structural shocks, in which oil demand shocks play a significant role in the sharp fall of oil prices since the second half of 2008 Onwards. While the reason for the fall in WIT crude oil price in the second half of 2014 was largely due to supply shocks and oil inventory demand shocks. During this period, contango has accelerated the accumulation of crude oil commercial stocks and has intensified the oil price fall.

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References

  1. Fattouh, B., & Kilian, L., & Mahadeva, L. (2013). The role of speculation in oil markets: What have we learned so far؟ Energy Journal, 34(3), 7-33.
  2. Hamilton, James D.  (2009a). Understanding crude oil price. Energy Journal, 30, 179-206.
  3. Irwin, H., & Sanders, D., & Merrin, R. (2009). Devil or angel: The role of speculation in the recent commodity price boom and bust. Journal of Agricultural and Applied Economics, 41(2), 377-391.
  4. Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. The American Economic Review, 99(3), 1053-1069.
  5. Kilian, L., & Murphy, D. (2010). The role of inventories and speculative trading in the global market for crude oil. Journal of Applied Econometrics, 29(3), 454-478.
  6. Kilian, L., & Lee, T. (2014). Quantifying the speculative component in the real price of oil. The role of global oil inventories. Journal of International Money and Finance, 42, 71-87.
  7. Knittel, R., & Pindyck, R. (2013). The simple economics of commodity price speculation. American Economic Journal Macroeconomics, 8(2), 85-110.
  8. Lombardi, J. (2011). Do financial investors destabilize the oil price? Working paper series of the European Central Bank (ECB), No.1346.
  9. Working, H. (1949). The theory of price of storage. American Economic Review, 39 (6),1254-1262.
  10. Fattouh, B., & Kilian, L., & Mahadeva, L. (2013). The role of speculation in oil markets: What have we learned so far؟ Energy Journal, 34(3), 7-33.
  11.  Hamilton, James D.  (2009a). Understanding crude oil price. Energy Journal, 30, 179-206.
  12. Irwin, H., & Sanders, D., & Merrin, R. (2009). Devil or angel: The role of speculation in the recent commodity price boom and bust. Journal of Agricultural and Applied Economics, 41(2), 377-391.
  13. Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. The American Economic Review, 99(3), 1053-1069.
  14.  Kilian, L., & Murphy, D. (2010). The role of inventories and speculative trading in the global market for crude oil. Journal of Applied Econometrics, 29(3), 454-478.
  15.     Kilian, L., & Lee, T. (2014). Quantifying the speculative component in the real price of oil. The role of global oil inventories. Journal of International Money and Finance, 42, 71-87.
  16.  Knittel, R., & Pindyck, R. (2013). The simple economics of commodity price speculation. American Economic Journal Macroeconomics, 8(2), 85-110.
  17.    Lombardi, J. (2011). Do financial investors destabilize the oil price? Working paper series of the European Central Bank (ECB), No.1346.
  18.  Working, H. (1949). The theory of price of storage. American Economic Review, 39 (6),1254-1262.

 

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