The price of crude oil never exceeded $40 per barrel until mid-2004. By July 2008 it peaked at $145 and by late 2008 it fell to $30 before increasing to $110 in 2011. Are speculators partly to blame for these price changes? Using a simple model of supply and demand in the cash and storage markets, we determine whether speculation is consistent with data on production, inventory changes, and convenience yields. We focus on crude oil, but our approach can be applied to other commodities. We show speculation had little, if any, effect on oil prices. (JEL G13, G18, G23, G31, Q35, Q38)
"The Simple Economics of Commodity Price Speculation."
American Economic Journal: Macroeconomics,
Contingent Pricing; Futures Pricing; option pricing
General Financial Markets: Government Policy and Regulation
Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
Nonrenewable Resources and Conservation: Government Policy