The Oil Markets: Let the Data Speak for Itself

67 Pages Posted: 22 May 2015

See all articles by Hilary Till

Hilary Till

Premia Research LLC; EDHEC-Risk Institute; J.P. Morgan Center for Commodities, University of Colorado Denver Business School; Global Commodities Applied Research Digest

Date Written: October 1, 2008

Abstract

In U.S. dollar terms, crude oil prices increased 525% from the end-of-2001 through July 31st, 2008. Was this rally yet another speculative bubble? Specifically, has the oil rally been based on speculative excess rather than fundamental supply-and-demand factors? In summary, this paper argues that with the fundamental supply-and-demand balance so tight and that with effective OPEC spare capacity so low that it has been logical to see very high prices to ration demand and/or encourage additional supply. That is the job and message of price, even if this is an unpopular message.

The paper discusses how many facets of the world oil market are too opaque, including future productive capacity estimates from important suppliers, inventory statistics from important non-OECD consumers, and summary position data from over-the-counter derivatives participants. There just has to be more transparency in these markets to enable policymakers and their economists to make sound decisions. This paper discusses how useful the petroleum-complex futures markets are in adding to the transparency of the oil markets. Even when fundamental data on the oil markets are sparse or opaque, large-scale supply-and-demand shifts leave footprints in futures-price relationships, from which one can potentially infer the market’s fundamentals. The paper provides several case-studies on this type of analysis. In the presence of active futures markets, an observer need not be a member of a cartel or a large corporation to gain insights into the oil market.

Keywords: commodity markets, oil market, futures market, speculation, oil price

JEL Classification: G1, G18, Q4, Q41

Suggested Citation

Till, Hilary, The Oil Markets: Let the Data Speak for Itself (October 1, 2008). Available at SSRN: https://ssrn.com/abstract=2609080 or http://dx.doi.org/10.2139/ssrn.2609080

Hilary Till (Contact Author)

Premia Research LLC ( email )

United States
312-583-1137 (Phone)
312-873-3914 (Fax)

HOME PAGE: http://customindices.spindices.com/custom-index-calculations/premia/all

EDHEC-Risk Institute

Nice
France

HOME PAGE: http://risk.edhec.edu/

J.P. Morgan Center for Commodities, University of Colorado Denver Business School ( email )

1475 Lawrence St.
Denver, CO 80202
United States

HOME PAGE: http://www.business.ucdenver.edu/commodities

Global Commodities Applied Research Digest ( email )

J.P. Morgan Center for Commodities
1475 Lawrence Street
Denver, CO 80202
United States

HOME PAGE: http://www.jpmcc-gcard.com/hilary-till

Register to save articles to
your library

Register

Paper statistics

Downloads
66
Abstract Views
420
rank
337,857
PlumX Metrics