The Role of Speculation in Oil Markets: What Have We Learned So Far?
Open accessAbstract
A popular view is that the surge in the real price of oil during 2003-08 cannot be explained by economic fundamentals, but was caused by the increased financialization of oil futures markets, which in turn allowed speculation to become a major determinant of the spot price of oil. This interpretation has been driving policy efforts to tighten the regulation of oil derivatives markets. This survey reviews the evidence supporting this view. We identify six strands in the literature and discuss to what extent each sheds light on the role of speculation. We find that the existing evidence is not supportive of an important role of speculation in driving the spot price of oil after 2003. Instead, there is strong evidence that the co-movement between spot and futures prices reflects common economic fundamentals rather than the financialization of oil futures markets.
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The distinction between normal speculation and excessive speculation is moot because there is no speculation in the physical market at all.
“the evidence in Figure 2 suggests that the distinction between normal speculation and speculation that is excessive is moot, for if there is no speculation in the physical market at all there cannot have been excessive speculation either under any definition.”
From THE ROLE OF INVENTORIES AND SPECULATIVE TRADING IN THE GLOBAL MARKET FOR CRUDE OIL (2014) · cites this paper as Fattouh et al. (2013)
This implication is fully consistent with other, more direct evidence on the potential impact of financial investors on oil futures prices.
“This implication is fully consistent with other, more direct evidence on the potential impact of financial investors on oil futures prices (seeFattouh et al., 2013).”
From THE ROLE OF INVENTORIES AND SPECULATIVE TRADING IN THE GLOBAL MARKET FOR CRUDE OIL (2014) · cites this paper as Fattouh et al., 2013
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- Authors
- Fattouh, B., Kilian, L., & Mahadeva, L.
- Affiliations
- SOAS University of London (GB)
- University of Michigan (US)
- Oxford Institute for Energy Studies, 57 Woodstock Road, Oxford OX2 6FA, UK..
- Venue
- The Energy Journal
- Publisher
- SAGE Publications
- Published
- 2013-07
- Volume
- 34
- Issue
- 3
- Pages
- 7-33
- ISSN
- 0195-6574 (ISSN-L)
- 1944-9089
- OpenAlex
- W2118985681
- Cited by
- 491
- References
- 54
- Citations by year
- 2026: 10 · 2025: 18 · 2024: 27 · 2023: 17 · 2022: 27 · 2021: 41 · 2020: 36 · 2019: 32 · 2018: 48 · 2017: 39 · 2016: 39 · 2015: 44 · 2014: 38 · 2013: 40 · 2012: 33
- FWCI
- 126.06
- Type
- journal article
- Language
- en
- Open access
- green
- papers.ssrn.com
- Locations
- The Energy Journal (publishedVersion)
- SSRN Electronic Journal (submittedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Econstor (Econstor) (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Market Dynamics and Volatility
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economics of Agriculture and Food Markets
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Keywords
- oil speculation, oil futures market, financialization, oil prices, economic fundamentals
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