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

Navigating the Oil Bubble: A Non-linear Heterogeneous-agent Dynamic Model of Futures Oil Pricing

We investigate short-term futures oil pricing over the 2003–2019 time-period in order to analyze the bubble-like dynamics, which characterizes the 2007–2009 years according to a large body of recent literature. Our research, based on the LPPL methodology and a flexible three-agent model (hedgers, fundamentalist speculators and chartists), confirms the presence of a bubble price pattern, which we attribute to the strong destabilizing behavior of speculators. In our view, this can be related to incorrect interpretation of market signals (or to the inability of trading against the market), especially by fundamentalists, combined with imitation across different categories of agents. This sets off positive feedback reactions along with self-reinforced herding of the kind best detected by the LPPL methodology.

Download Executive Summary Purchase ( $25 )

Keywords: Oil pricing, Bubble, Speculation, Dynamic hedging, Logistic smooth transition, Multivariate GARCH

DOI: 10.5547/01956574.42.5.gcif

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

Published in Volume 42, Number 5 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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