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Recent Dynamics of Crude Oil Prices

30 Pages Posted: 12 Jan 2007  

Noureddine Krichene

International Monetary Fund (IMF) - African Department

Date Written: Janurary 2007

Abstract

Crude oil prices have been on a run-up spree in recent years. Their dynamics were characterized by high volatility, high intensity jumps, and strong upward drift, indicating that oil markets were constantly out-of-equilibrium. An explanation of the oil price process in terms of the underlying fundamentals of oil markets and world economy was provided, viewing pressure on oil prices mainly as a result of rigid crude oil supply and an expanding world demand for crude oil. A change in the oil price process parameters would require a change in the underlying fundamentals. Market expectations, extracted from call and put option prices, anticipated no change, in the short term, in the underlying fundamentals. Markets expected oil prices to remain volatile and jumpy, and with higher probabilities, to rise, rather than fall, above the expected mean.

Keywords: Oil prices, Economic models

JEL Classification: C10, C20, C32, Q4

Suggested Citation

Krichene, Noureddine, Recent Dynamics of Crude Oil Prices (Janurary 2007). IMF Working Paper No. 06/299. Available at SSRN: https://ssrn.com/abstract=956763

Noureddine Krichene (Contact Author)

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

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