American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
The Simple Economics of Commodity Price Speculation
American Economic Journal: Macroeconomics
vol. 8,
no. 2, April 2016
(pp. 85–110)
Abstract
The price of crude oil never exceeded $40 per barrel until mid-2004. By July 2008 it peaked at $145 and by late 2008 it fell to $30 before increasing to $110 in 2011. Are speculators partly to blame for these price changes? Using a simple model of supply and demand in the cash and storage markets, we determine whether speculation is consistent with data on production, inventory changes, and convenience yields. We focus on crude oil, but our approach can be applied to other commodities. We show speculation had little, if any, effect on oil prices. (JEL G13, G18, G23, G31, Q35, Q38)Citation
Knittel, Christopher R., and Robert S. Pindyck. 2016. "The Simple Economics of Commodity Price Speculation." American Economic Journal: Macroeconomics, 8 (2): 85–110. DOI: 10.1257/mac.20140033Additional Materials
JEL Classification
- G13 Contingent Pricing; Futures Pricing; option pricing
- G18 General Financial Markets: Government Policy and Regulation
- G23 Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- Q35 Hydrocarbon Resources
- Q38 Nonrenewable Resources and Conservation: Government Policy
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