IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

The Role of Speculation in Oil Markets: What Have We Learned So Far?

A popular view is that the surge in the real price of oil during 2003-08 cannot be explained by economic fundamentals, but was caused by the increased financialization of oil futures markets, which in turn allowed speculation to become a major determinant of the spot price of oil. This interpretation has been driving policy efforts to tighten the regulation of oil derivatives markets. This survey reviews the evidence supporting this view. We identify six strands in the literature and discuss to what extent each sheds light on the role of speculation. We find that the existing evidence is not supportive of an important role of speculation in driving the spot price of oil after 2003. Instead, there is strong evidence that the co-movement between spot and futures prices reflects common economic fundamentals rather than the financialization of oil futures markets.

Purchase ( $25 )

Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation; Energy Investment and Finance – Trading Strategies and Financial Instruments; Energy Investment and Finance – Corporate Strategy; Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes: Q02: Commodity Markets, Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, G13: Contingent Pricing; Futures Pricing; option pricing, G12: Asset Pricing; Trading Volume; Bond Interest Rates, Q35: Hydrocarbon Resources

Keywords: Oil price, Spot market, Futures market, Fundamentals, Speculation, Financialization

DOI: 10.5547/01956574.34.3.2

References: Reference information is available for this article. Join IAEE, log in, or purchase the article to view reference data.

Published in Volume 34, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


© 2024 International Association for Energy Economics | Privacy Policy | Return Policy