Energy Value
This paper examines the factors responsible for changes in crude oil prices. The paper reviews the
statistical behavior of oil prices, relates these to the predictions of theory, and looks in detail at key
features of petroleum demand and supply.
With the growth of “unconventional oil and gas producers” (e.g., U.S. shale oil drillers), the power of OPEC members to manipulate the price of petroleum is weakening. The days of crude oil reaching prices above $100/barrel may be long behind us; in fact, $50/barrel oil may be the new normal.
We analyze the role of hedge fund, swap dealer, and arbitrageur activity in the crude oil market. The contribution of our work is to examine the role of institutional traders in switching between high-volatility and low-volatility regimes.
Was the surge in the oil prices between 2003 and 2008 caused by financial investors taking speculative positions in oil futures markets? Many pundits and policymakers seem to think so, but this column says this view goes against the extensive body of evidence.