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Oil price regimes and their role in price diversions from market fundamentals

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  • Robert. K. Kaufmann

    (Boston University)

  • Caitlin Connelly

    (Boston University)

Abstract

Speculative bubbles, market governance and property rights are thought to affect oil prices, but their timing and magnitude are uncertain. Here, we quantify these effects using econometric techniques that identify periods between 1938:1 and 2018:3 (denoting year:quarter) when prices strayed from the levels implied by market fundamentals. We identify nine price regimes that are associated with the Organization of the Petroleum Exporting Countries gaining control over the marginal supply of crude oil, US energy legislation, a precautionary demand shock, the Arab Spring and speculative bubbles. These bubbles raised real oil prices by US$14.31 and US$4.65 per barrel in 2007:4–2008:3 and 2010:1–2011:1, respectively, which transferred US$42.8 billion from US consumers to US oil producers and US$87.4 billion from the US economy to oil exporting nations. Conversely, some sharp changes, such as the price decline associated with the Asian financial crisis, can be explained by market fundamentals.

Suggested Citation

  • Robert. K. Kaufmann & Caitlin Connelly, 2020. "Oil price regimes and their role in price diversions from market fundamentals," Nature Energy, Nature, vol. 5(2), pages 141-149, February.
    • Handle: RePEc:nat:natene:v:5:y:2020:i:2:d:10.1038_s41560-020-0549-1
    DOI: 10.1038/s41560-020-0549-1
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    Cited by:

    1. Zhang, Xiaokong & Chai, Jian & Tian, Lingyue & Pan, Yue & Wang, Jiaoyan, 2024. "What drives the high-risk spillover of benchmark oil prices into China's LNG market?," Energy, Elsevier, vol. 306(C).
    2. R W. Bentley & M. Mushalik & J. Wang, 2020. "The Resource-Limited Plateau in Global Conventional Oil Production: Analysis and Consequences," Biophysical Economics and Resource Quality, Springer, vol. 5(2), pages 1-22, June.
    3. Wu, Fei & Xiao, Xuanqi & Zhou, Xinyu & Zhang, Dayong & Ji, Qiang, 2022. "Complex risk contagions among large international energy firms: A multi-layer network analysis," Energy Economics, Elsevier, vol. 114(C).
    4. Arampatzidis, Ioannis & Dergiades, Theologos & Kaufmann, Robert K. & Panagiotidis, Theodore, 2021. "Oil and the U.S. stock market: Implications for low carbon policies," Energy Economics, Elsevier, vol. 103(C).
    5. Jamil, Faisal, 2024. "Empirical analysis of investment in Pakistan’s upstream sector," Resources Policy, Elsevier, vol. 88(C).
    6. Seulki Chung, 2024. "Modelling and Forecasting Energy Market Volatility Using GARCH and Machine Learning Approach," Papers 2405.19849, arXiv.org.
    7. Zixi Guo & Dong Chen & Yiyu Chen, 2024. "Numerical Calculation and Application for Crushing Rate and Fracture Conductivity of Combined Proppants," Energies, MDPI, vol. 17(16), pages 1-22, August.
    8. Zhao, Yuejun & Fan, Guangjuan & Song, Kaoping & Li, Yilin & Chen, Hao & Sun, He, 2021. "The experimental research for reducing the minimum miscibility pressure of carbon dioxide miscible flooding," Renewable and Sustainable Energy Reviews, Elsevier, vol. 145(C).

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