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

By B. Fattouh, Lutz Kilian, Lavan Mahadeva. 2013

478 citations recorded by the source corpus.

Abstract 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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/e58b7746524aa9ede4ee1fad65e392d4b5af0e28

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

Citations in the corpus

Risk Premia in Crude Oil Futures Prices (2013, background): “Recent empirical investigations of a possible link include Kilian and Murphy (2013), Tang and Xiong (2012), Buyuksahin and Robe (2011), Alquist and Gervais (2011), Mou (2010), Singleton (2011), Irwin and Sanders (2012), and Fattouh et al. (2013).”
A Model of Financialization of Commodities (2015, unknown): “Surveys of academic literature by Irwin and Sanders (2011) and Fattouh, Kilian, and Mahadeva (2012) reach a conclusion that while the participation of institutions in commodity futures markets has clearly increased significantly, it is not clear that this has affected commodity futures and spot…”
Time-Varying Impact of Geopolitical Risks on Oil Prices (2020, background): “Furthermore, the so-called “financialization” of the commodities market (Basak and Pavlova, 2016; Fattouh et al., 2013) has opened the debate on whether the commodity prices are still driven by supply and demand factors (Krugman, 2008; Hamilton, 2009; Kilian, 2009) or they are also driven by…”
Effects of Index-Fund Investing on Commodity Futures Prices (2014, unknown): “However, as Fattouh et al. (2013) noted, the increasing correlation could also be attributed to an increasing importance of common factors, such as the growing importance of emerging markets in both commodity markets and global economic activity and the global character of the financial crisis in…”
DIRECTORATE GENERAL FOR INTERNAL POLICIES POLICY DEPARTMENT A: ECONOMIC AND SCIENTIFIC POLICY (2012, background): “Research found that speculation has also been related to decrease in oil prices, further contributing to price volatility (Bassam et al. 2012).”
Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us (2016, background): “This literature has been reviewed in depth in Fattouh et al. (2013). There is no persuasive evidence in support of this financial speculation hypothesis, which in fact is at odds with estimates of standard economic models of markets for storable commodities (see, e.”
Oil Prices, Exchange Rates and Interest Rates (2019, unknown): “1 Early examples are Krugman (1983a,b), Golub (1983), Frankel (1984), Brown and Phillips (1986), and Trehan (1986).”
Oil shocks and stock markets: dynamic connectedness under the prism of recent geopolitical and economic unrest (2017, background): “stock and Filis (2014), Filis (2014), Chang et al. (2013), Antonakakis and Filis (2013), Sadorsky (2012), Broadstock et al.”
Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence (2018, background): “Recent evidence also suggests that the oil market has experienced increased financialization, especially since the start of the 2000s (see, inter alia , Büyüksahin and Robe, 2014; Silvennoinen and Thorp, 2013; Fattouh et al., 2013).”
Do Oil Price Increases Cause Higher Food Prices (2014, unknown): “In related work, Giordani et al. (2012) estimate that a 1% increase in the share of exports covered by export restrictions is associated with an increase in global agricultural commodity prices by 1.”