Peaks, Spikes, and Barrels: Modeling Sharp Movements in Oil Prices

By Malika Pant, Martin Mühleisen, Alun H. Thomas

August 1, 2010

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Format: Chicago

Malika Pant, Martin Mühleisen, and Alun H. Thomas Peaks, Spikes, and Barrels: Modeling Sharp Movements in Oil Prices, (USA: International Monetary Fund, 2010) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Global oil markets were roiled by sharp price swings in 2008, and economists are still divided over the reasons for the unusual volatility. Those emphasizing fundamentals point to inelastic supply and demand curves, others view the phenomenon mostly as a result of financial investors flocking into commodity markets. This paper attempts to infer the strength of these competing hypotheses, using a simultaneous equation model that enables us to undertake a separate analysis of supply and demand factors. The model broadly captures both the surge and subsequent fall in prices, with a particularly strong impact of demand factors. The model captures a strong effect of a measure for global liquidity but does not find support for a speculative motive.

Subject: Asset and liability management, Commodities, Consumption, Emerging and frontier financial markets, Financial markets, International liquidity, National accounts, Oil, Oil prices, Prices

Keywords: Asset demand, Commodity, Commodity price inflation, Consumption, Consumption demand, Emerging and frontier financial markets, Equity price, Global, International liquidity, OECD consumption, Oil, Oil price, Oil prices, Opec, OPEC supply quota, Price, Price surge, Speculation, Supply, Supply margin term, WP

Publication Details

Pages:

17
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/186
Stock No:

WPIEA2010186
ISBN:

9781455202201
ISSN:

1018-5941

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