Oil Prices: the True Role of Speculation

In US dollar terms, the price of oil rose 525% from the end of 2001 to July 31, 2008. This position paper argues that, despite the appeal of blaming speculators, supply-and-demand imbalances, the fall in the dollar and low spare capacity in the oil-producing countries are the major causes of this sharp rise.

Author(s):

Benoît Maffei

It also identifies many of the excessively opaque facets of the world oil markets and argues that greater transparency would enable policymakers to make sound economic decisions. Oil futures markets are shown to contribute to the greater transparency of oil markets in general. However, as the paper shows, futures trading can have short-term effects on commodity prices. In general, it is nearly impossible to pinpoint a single cause for recent oil price movements; indeed, an overview of the geopolitics of the major producing regions underscores the complexity of attempts to do so and points to a multiplicity of structural causes for what this paperrecent falls in oil prices notwithstandingterms the third oil shock. 

Type: Position paper
Date: le 03/11/2008
Research Cluster : Finance

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