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Living in an Era when Market Fundamentals Determine Crude Oil Price

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  • Theodosios Perifanis
  • Athanasios Dagoumas

Abstract

Crude oil price plays a crucial role in the trajectory of the economic activity. This paper aims at quantifying the impact of the fundamental drivers of crude oil price, over the period 2008-2017 using monthly data. This period, with sharp fluctuations of crude oil prices, has not been examined thoroughly in the literature. We apply regression analysis to examine the crude oil price drivers, concluding that crude oil price follows mostly market fundamentals, such as consumption, OPEC production, shale production and days ahead consumption for OECD stocks. Results unveil the importance of both factors of demand and supply to affect the price. We also find evidence on the considerable impact of S&P crude oil index, as a "paper oil" market indicator. We do not find evidence from indicators measuring political instability, such as the number of terrorists attacks in oil producing countries, but as well the VIX volatility index, which - besides a market instability index - could also be perceived as an index incorporating political instability. The impact of political factors is not evident in our analysis, possibly because we do not consider related dummy variables. Moreover, the paper applies bivariate VAR and GARCH analysis to examine crude oil price volatility, not finding strong volatility transmission with the examined market indices, namely the S&P crude oil and the VIX indices.

Suggested Citation

  • Theodosios Perifanis & Athanasios Dagoumas, 2019. "Living in an Era when Market Fundamentals Determine Crude Oil Price," The Energy Journal, International Association for Energy Economics, vol. 0(The New E).
    • Handle: RePEc:aen:journl:ej40-si1-dagoumas
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    Citations

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    Cited by:

    1. Cai, Yifei & Mignon, Valérie & Saadaoui, Jamel, 2022. "Not all political relation shocks are alike: Assessing the impacts of US–China tensions on the oil market," Energy Economics, Elsevier, vol. 114(C).
    2. Mignon, Valérie & Saadaoui, Jamel, 2024. "How do political tensions and geopolitical risks impact oil prices?," Energy Economics, Elsevier, vol. 129(C).
    3. Valérie Mignon & Jamel Saadaoui, 2022. "Asymmetries in the oil market: Accounting for the growing role of China through quantile regressions," Working Papers of BETA 2022-36, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    4. Gkillas, Konstantinos & Manickavasagam, Jeevananthan & Visalakshmi, S., 2022. "Effects of fundamentals, geopolitical risk and expectations factors on crude oil prices," Resources Policy, Elsevier, vol. 78(C).
    5. Theodosios Perifanis, 2019. "Detecting West Texas Intermediate (WTI) Prices’ Bubble Periods," Energies, MDPI, vol. 12(14), pages 1-16, July.
    6. Theodosios Perifanis & Athanasios Dagoumas, 2020. "Price and Volatility Spillovers between Crude Oil and Natural Gas markets in Europe and Japan-Korea," International Journal of Energy Economics and Policy, Econjournals, vol. 10(5), pages 432-446.
    7. Jamel Saadaoui, 2024. "The Impact of Political Tensions and Geopolitical Risks on Oil Prices in Unstable Environments," Working Papers 2024.13, International Network for Economic Research - INFER.
    8. Umar, Muhammad & Su, Chi-Wei & Rizvi, Syed Kumail Abbas & Lobonţ, Oana-Ramona, 2021. "Driven by fundamentals or exploded by emotions: Detecting bubbles in oil prices," Energy, Elsevier, vol. 231(C).
    9. Gharib, Cheima & Mefteh-Wali, Salma & Serret, Vanessa & Ben Jabeur, Sami, 2021. "Impact of COVID-19 pandemic on crude oil prices: Evidence from Econophysics approach," Resources Policy, Elsevier, vol. 74(C).

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    JEL classification:

    • F0 - International Economics - - General

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