Stevans, Lonnie and Sessions, David (2008): Speculation, Futures Prices, and the U.S. Real Price of Crude Oil.
Download (210Kb) | Preview
In this study, we examine the relationship between the U.S. real price of oil and factors that affect its movement over time: futures prices, the value of the dollar, exploration, demand, and supply. All of these variables are treated as jointly endogenous and a reduced form vector error correction model, testing for cointegration amongst the variables, is estimated. We find that for model specifications with short-term futures contracts, supply does indeed dominate price movements in the crude oil market. However, for specifications including longer-term contracts that are inherently more speculative, the real price of oil appears to be determined predominantly by the futures price. Moreover, there is empirical evidence of hoarding in the crude oil market: both oil stocks/inventories and futures prices are found to be positively cointegrated/correlated with each other. From a policy perspective, the results of this analysis indicate that if regulators really wanted to limit speculation in the oil market, it should keep the shorter-term futures contracts and eliminate the more speculative six months futures contracts.
|Item Type:||MPRA Paper|
|Original Title:||Speculation, Futures Prices, and the U.S. Real Price of Crude Oil|
|Keywords:||futures prices, cointegration, speculation, hoarding|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply
G - Financial Economics > G0 - General > G00 - General
|Depositing User:||Lonnie Stevans|
|Date Deposited:||06. Jul 2008 00:23|
|Last Modified:||13. Feb 2013 23:01|
Elliott, Graham, Thomas J. Rothenberg and James H. Stock (1996). Efficient Tests for an Autoregressive Unit Root, Econometrica, 64, pp. 813-836.
Enders, Walter (2004). Applied Econometric Time Series, Second Edition, John Wiley and Sons, Inc.: New York, NY.
Engle, Robert E., and Clive W.J. Granger (1987). Cointegration and Error-Correction: Representation, Estimation, and Testing, Econometrica, 55, March, pp. 251-276.
Johansen, Soren (1988). Statistical Analysis of Cointegration Vectors, Journal of Economic Dynamics and Control, 12, June-September, pp. 231-254.
Krugman, Paul (2008). The Oil Nonbubble, The New York Times Opinion, http://www.nytimes.com/2008/05/12/opinion/12krugman.html?_r=2&th&emc=th&oref=sl&oref=slogin.
Sims, Christopher (1980). Macroeconomics and Reality, Econometrica, 48, January, pp. 161-200.