Understanding Crude Oil Prices

Hamilton, James D.

doi:10.3386/w14492

“…In fact, there exists a large number of potential candidates to explain persistent swings in the evolution of the oil price. Hamilton (2009), however, argues that the global demand for oil, especially from China, is the key determinant among a host of others, such as commodity price speculation, time delays or geological limitations on increasing production, OPEC monopoly pricing, and an increasingly important contribution of the scarcity rent. He therefore concludes that the strong growth in demand from China has substantially driven the oil price in the last decade.…”

Section: Fundamental Value Of the Oil Pricementioning

confidence: 99%

Nonlinear expectations in speculative markets – Evidence from the ECB survey of professional forecasters

Reitz

¹

,

Rülke

²

,

Stadtmann

³

2012

Journal of Economic Dynamics and Control

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Nonlinear Expectations in Speculative Markets -Evidence from the ECB Survey of Professional ForecastStefan Reitz, Jan-Christoph Rülke and Georg Stadtmann Abstract: Chartist and fundamentalist models have proven to be capable of replicating stylized facts on speculative markets. In general, this is achieved by specifying nonlinear interactions of otherwise linear asset price expectations of the respective trader groups. This paper investigates whether or not regressive and extrapolative expectations themselves exhibit significant nonlinear dynamics. The empirical results are based on a new data set from the European Central Bank Survey of Professional Forecasters on oil price expectations. In particular, we find that forecasters form destabilizing expectations in the neighborhood of the fundamental value, whereas expectations tend to be stabilizing in the presence of substantial oil price misalignment. June 2011 Abstract Chartist and fundamentalist models have proven to be capable of replicating stylized facts on speculative markets. In general, this is achieved by specifying nonlinear interactions of otherwise linear asset price expectations of the respective trader groups. This paper investigates whether or not regressive and extrapolative expectations themselves exhibit significant nonlinear dynamics. The empirical results are based on a new data set from the European Central Bank Survey of Professional Forecasters on oil price expectations. In particular, we find that forecasters form destabilizing expectations in the neighborhood of the fundamental value, whereas expectations tend to be stabilizing in the presence of substantial oil price misalignment.JEL classification: F31, D84, C33

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“…For the price elasticity of the total oil demand, the value used in Hamilton (2009b) is 0.25, in line with Krichene's (2005) long-run estimate for the period 1974-2004. Hamilton (2009b argues that this elasticity should be expected to be even smaller.…”

Section: A Competitive Fringementioning

confidence: 84%

“…The limit-pricing theory carries over to the case of an extractive monopoly that exploits a finite stock of resource over time: as long as there is some resource to be 1 Krichene's (2005) estimate of the long-run price elasticity of the demand for crude oil is (absolute value) 0.26 for ; a level that almost coincides with the 0.25 elasticity used in Hamilton (2009b). According to Hamilton (2009a, pp.…”

Section: Introductionmentioning

confidence: 99%

Limit pricing and the (in)effectiveness of the carbon tax

Sá

¹

,

Daubanes

²

2016

Journal of Public Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Demand for oil is very price inelastic. Facing such demand, an extractive cartel induces the highest price that does not destroy its demand, unlike the conventional Hotelling analysis: the cartel tolerates ordinary substitutes to its oil but deters high-potential ones. Limit-pricing equilibria of non-renewable-resource markets sharply differ from usual Hotelling outcomes. Terms of use: Documents in EconStor mayResource taxes have no effect on current extraction; extraction may only be reduced by supporting its ordinary substitutes. The carbon tax applies to oil and also penalizes its ordinary (carbon) substitutes, inducing the cartel to increase current oil production. The carbon tax further affects ultimately-abandoned oil reserves ambiguously.JEL-Code: Q300, L120, H210, Q420.

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“…However, Johansen test often leads to a cointegrating vector without economic meaning (Hatanaka 1996). The limitation of the Johansen procedure is that it assumes that the cointegrating vector remains constant during the sample period, which is not true due to technological progress, changes in people's preferences, economic crisis, policy or regime alteration and institutional development (Hamilton 2008). Such limitations are also valid for EG method.…”

Section: Ii2 Cointegration Testsmentioning

confidence: 99%

“…Lin (2009) finds oligopolistic behavior among non-OPEC producers and collusion among OPEC producers during the period 1970-2004. Hamilton (2008 investigates the factors responsible for changes in crude oil prices by reviewing the statistical behavior of oil prices and the key features of crude oil supply and demand.…”

Section: Introduction and Literature Reviewmentioning

confidence: 99%

Long run dynamic volatilities between OPEC and non-OPEC crude oil prices

Ghassan

¹

,

Alhajhoj

²

2016

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Understanding the long-run dynamics of OPEC and non-OPEC crude oil prices is important in an era of increased financialization of petroleum markets. Utilizing an ECM within a threshold cointegration and CGARCH errors framework, we provide evidence on the cointegrating relationship and estimate how and to what extent the respective prices adjust to eliminate disequilibrium. Our findings suggest that the adjustment process of OPEC prices to the positive discrepancies is slow which implies that OPEC producers do not prefer moderate oil prices; however, the reverse holds for non-OPEC producers. These results reflect distinct competitive behaviors between OPEC and non-OPEC producers.

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Understanding Crude Oil Prices

Cited by 264 publications

References 18 publications

Nonlinear expectations in speculative markets – Evidence from the ECB survey of professional forecasters

Nonlinear expectations in speculative markets – Evidence from the ECB survey of professional forecasters

Limit pricing and the (in)effectiveness of the carbon tax

Long run dynamic volatilities between OPEC and non-OPEC crude oil prices

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