The Role of Financial Markets in Determining Physical Oil Prices: A Survey of the Literature

Does speculation drive the price of oil?

“…Rising futures prices could, via arbitrage in price hedging in physical oil versus futures markets, drag the spot price upwards. A recent overview paper by Ederington et al . (2011) discusses mechanisms by which speculation in the futures market could feed through to the spot market (market for physical oil) as well as the speculation issue more generally.…”

“…the spot price and not the futures price would react to a deviation from the long‐term relationship between the two prices, with lagged changes in the futures price driving the spot price in the same direction. A caveat is, however, in place: as Ederington et al . (2011) point out, this implies that the futures market leads the spot market, in this case by 1 day or more.…”

A new insight into oil price-inflation nexus

“…Of the variant types of non-renewable energy, oil is considered to be the most important, which is partly due to the fact that it is a globally traded commodity.2 See, inter alia,Barsky and Kilian (2004),Atkins and Jazayeri (2004),Al-Qahtani et al (2008) andEderington et al (2011) for literature survey.3 Demand shock is mainly caused by political instability in the oil producing economies, while economic down turn and excessive changes (in most cases, increase) in oil price cause demand shock(Chou andLin, 2013 andAtil et al, 2014).…”