Demand effects and speculation in oil markets: Theory and evidence |
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| Institution: | 1. Assistant Professor, Canadian Chiropractic Research Foundation Professorship, Faculty of Medicine, School of Medical Rehabilitation, University of Manitoba, Winnipeg, Manitoba, Canada;2. Adjunct Assistant Professor, Research Department, New York Chiropractic College, Seneca Falls, NY;3. Assistant Professor, University of Manitoba, Faculty of Medicine, Department of Surgery, Section of Orthopedics and Neurosurgery, Winnipeg, Manitoba, Canada;4. Graduate Student, University of Manitoba, Faculty of Medicine, School of Medical Rehabilitation, Winnipeg, Manitoba, Canada;5. Undergraduate Student, University of Manitoba, Faculty of Kinesiology & Recreation Management, Winnipeg, Manitoba, Canada;6. Assistant Professor, University of Manitoba, Faculty of Kinesiology & Recreation Management, Winnipeg, Manitoba, Canada |
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| Abstract: | We present evidence showing the existence of stable cointegrating vectors connecting four important variables in the U.S. and global oil markets: oil production, stocks of crude oil, the real price of oil, and broad measures of income. Our data are monthly, and go back to the 1930s, split into sub-samples which correspond to periods before and after the 1973 crisis. We further show that the cointegrating vectors found in the data accord well with an extended commodity storage model which allows for demand growth dynamics and for supply regimes. Specifically, inventories and price move in opposite directions when supply is flexible, but the relationship reverses so that they comove when supply is inflexible. |
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| Keywords: | Oil market Speculation Commodity storage Cointegration |
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