Understanding the Decline in the Price of Oil since June 2014

Baumeister, Christiane; Kilian, Lutz

doi:10.1086/684160

Cited by 195 publications

(178 citation statements)

References 14 publications

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“…The changes to U.S. biofuel policies after 2005 are a case in point. It is well understood that the response of the price of ethanol (and the price of related commodities such as corn) to shifts in biofuel policies operates in part through market expectations, yet it has proved difficult to measure these expectations to date and to directly confront these views with the data (see Wright 2014;Baumeister and Kilian 2014;Carter, Rausser and Smith 2016).…”

Section: Resultsmentioning

confidence: 99%

“…Estimates of the risk premium not only help assess the degree of market integration across commodities, but, as emphasized in Baumeister and Kilian (2016a,b,c), they may be used to recover the market expectation of the spot price of the commodities traded in futures markets. Abbott 2014;Baumeister and Kilian 2014;Wright 2014). The precise nature of this nonlinear relationship is unknown and so complicated as to render other regression-based approaches to estimating the time-varying risk premium infeasible.…”

Section: Estimating Price Expectationsmentioning

confidence: 99%

“…They may also respond to shifts in the supply of gasoline triggered by refinery outages, to cost shocks associated with shifts in the global price of crude oil, and with shifts in the domestic demand for gasoline driven by the U.S. business cycle or by changes in consumer behavior (see, e.g., Coglianese, Davis, Kilian and Stock 2016). Although there have been many analyses of these markets in isolation, only recently attention has been given to the close economic relationship between energy and agricultural markets (see, e.g., Salvo and Huse 2011;Mallory, Irwin, and Hayes 2012;Baumeister and Kilian 2014;Carter, Rausser and Smith 2016;Bielen, Newell and Pizer 2016).…”

Section: Introductionmentioning

confidence: 99%

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Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol?

Baumeister

Ellwanger

Kilian

2017

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It is commonly believed that the response of the price of corn ethanol (and hence of the price of corn) to shifts in biofuel policies operates in part through market expectations and shifts in storage demand, yet to date it has proved difficult to measure these expectations and to empirically evaluate this view. We utilize a recently proposed methodology to estimate the market's expectations of the prices of ethanol, unfinished motor gasoline and crude oil at horizons from three months to one year. We quantify the extent to which price changes were anticipated by the market, the extent to which they were unanticipated, and how the risk premium in these markets has evolved. We show that the Renewable Fuel Standard (RFS) is likely to have increased ethanol price expectations by as much $1.45 in the year before and in the year after the implementation of the RFS had started. Our analysis of the term structure of expectations provides support for the view that a shift in ethanol storage demand starting in 2005 caused an increase in the price of ethanol. There is no conclusive evidence that the tightening of the RFS in 2008 shifted market expectations, but our analysis suggests that policy uncertainty about how to deal with the blend wall raised the risk premium in the ethanol futures market in mid-2013 by as much as 50 cents at longer horizons. Finally, we present evidence against a tight link from ethanol price expectations to corn price expectations and hence to storage demand for corn in 2005-06. JEL Code: Q18, Q28, Q42, Q58

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Section: Resultsmentioning

confidence: 99%

Section: Estimating Price Expectationsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol?

Baumeister

Ellwanger

Kilian

2017

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“…2015). This makes these economies particularly sensitive to the global economic growth trends that drive the demand for oil imports and oil prices globally.…”

Section: Synchronized Ms Dynamic Spillover Specificationmentioning

confidence: 99%

Regional and global spillovers and diversification opportunities in the GCC equity sectors

Balcılar

Demirer

Hammoudeh

2015

Emerging Markets Review

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This paper examines the international diversification benefits of bloc-wide equity sectors in the oilrich Gulf Cooperation Council (GCC) countries by comparing alternative spillover models that encompass local, regional and global factors. Some GCC-wide equity sectors/subsectors are found to display segmentation from global markets during periods of high and extreme market volatility, and thus can serve as safe havens for international portfolio investors during such periods. The in-and out-of-sample portfolio analyses further suggest that supplementing global portfolios with positions in the GCC markets yields significant international diversification benefits, consistently offering much improved risk-adjusted returns across the alternative spillover models.JEL Classification: C32, G11, G15

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“…Kilian (2015) provides a detailed analysis of the shale oil revolution and the implications for U.S. oil prices. Baumeister and Kilian (2015) and Kilian (2015) provide a detailed analysis of the shale oil revolution and the implications for U.S. oil prices.…”

Section: Introductionmentioning

confidence: 99%

The Impact of Oil Price Shocks on the U.S. Stock Market: A Note on the Roles of U.S. and Non-U.S. Oil Production

Kang

Ratti

Vespignani

2015

gwp

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Kilian and Park (IER 50 (2009), 1267-1287) find shocks to oil supply are relatively unimportant to understanding changes in U.S. stock returns. We examine the impact of both U.S. and non-U.S. oil supply shocks on stock returns in light of the unprecedented expansion in U.S. oil production since 2009. Our results underscore the importance of the disaggregation of world oil supply and of the recent extraordinary surge in the U.S. oil production for analysing impact on U.S. stock prices. We also show that stock returns respond very differently at the industrial level to non-U.S. and U.S. oil supply shocks.

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Understanding the Decline in the Price of Oil since June 2014

Cited by 195 publications

References 14 publications

Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol?

Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol?

Regional and global spillovers and diversification opportunities in the GCC equity sectors

The Impact of Oil Price Shocks on the U.S. Stock Market: A Note on the Roles of U.S. and Non-U.S. Oil Production

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