On the Sources and Consequences of Oil Price Shocks: The Role of Storage
November 8, 2012
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Summary
Building on recent work on the role of speculation and inventories in oil markets, we embed 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. We find 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. Our 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.
Subject: Commodities, Commodity price fluctuations, Economic theory, Inflation, Oil, Oil prices, Prices, Supply shocks
Keywords: Commodity price fluctuations, demand shock, Global, Inflation, Oil, oil demand, oil demand shocks, oil price fluctuations, Oil prices, oil storage, oil storage demand shock, oil supply shock, oil supply shocks speculative oil demand, price of oil, productivity shock, sticky-price DSGE model, storage demand shocks, Supply shocks, WP
Pages:
41
Volume:
2012
DOI:
Issue:
270
Series:
Working Paper No. 2012/270
Stock No:
WPIEA2012270
ISBN:
9781475586367
ISSN:
1018-5941
