Identifying oil supply news shocks and their effects on the global oil market

35 Pages Posted: 26 Mar 2021 Last revised: 24 Aug 2021

See all articles by Arthur Thomas

Arthur Thomas

Université Paris Dauphine - Economics; CREST-ENSAE

Zakaria Moussa

University of Nantes - LEMNA

Date Written: March 25, 2021

Abstract

This paper uses a new empirical strategy to identify oil supply news shocks within a Non-Causal VAR model of standard global oil market variables. These shocks explain most of the movements in oil production over a long but finite time horizon. Our findings highlight the prominent role of expectations in propagating shocks. Negative oil supply news shocks cause abrupt and permanent reactions in global oil production, global economic activity and in oil inventory. However, an oil supply shock has only a limited effect on oil price. Finally, a news shock regarding oil supply shortfalls has macroeconomic consequences, causing a substantial decline in US industrial production.

Keywords: Oil supply news shocks, global oil market, Structural VAR analysis, Nonfundamentalness, Non-causal VAR

JEL Classification: C32, D84, E32, Q41, Q43

Suggested Citation

Thomas, Arthur and Moussa, Zakaria, Identifying oil supply news shocks and their effects on the global oil market (March 25, 2021). USAEE Working Paper No. 21-490, Available at SSRN: https://ssrn.com/abstract=3812529 or http://dx.doi.org/10.2139/ssrn.3812529

Arthur Thomas (Contact Author)

Université Paris Dauphine - Economics ( email )

Place du Marechal de Lattre Tassigny
Paris
France

CREST-ENSAE ( email )

France

Zakaria Moussa

University of Nantes - LEMNA ( email )

Nantes, 44000
France

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