Betting on black gold: Oil speculation and U.S. inflation (2020-2022)
Carlotta Breman (c.breman@student.tudelft.nl) and
Servaas Storm (s.t.h.storm@tudelft.nl)
Additional contact information
Carlotta Breman: Delft University of Technology
Servaas Storm: Delft University of Technology
No inetwp208, Working Papers Series from Institute for New Economic Thinking
Abstract:
Sharp increases in systemically important crude oil prices have been a major cause of the recent surge in the inflation rate in the U.S. This paper investigates the extent to which the increase in oil prices can be attributed to excessive speculation in the oil futures market. Our analysis suggests that excessive speculation in the crude oil market has been responsible for 24%-48% of the increase in the WTI crude oil price during October 2020-June 2022. These estimates translate into an oil price increase of around $18-$36 per barrel and an increase in the U.S. PCE inflation rate by circa 0.75 to 1.5 percentage points during the same period. We complement the analysis with an empirical investigation of the crude oil market which shows that (speculative) long non-commercial open-interest positions in oil futures have increased considerably relative to short non-commercial positions. We further find that higher futures prices for crude oil 'Granger-cause' oil spot prices, the futures prices of corn and soybeans and the fertilizer price. These econometric results show that oil speculators have to be held accountable for not just raising oil prices, but also driving up food commodity prices. We finally discuss measures to clamp down on excessive speculation in oil in order to eliminate its systemically adverse consequences for the U.S. economy.
Keywords: inflation; oil prices; oil majors; spot and futures prices; speculation; Granger causality; Working's T-index; speculative pressure; commercial and non-commercial traders; open interest; index investor. (search for similar items in EconPapers)
JEL-codes: E0 E5 E6 E62 I12 J08 O23 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2023-06-06
New Economics Papers: this item is included in nep-ene and nep-mac
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Citations: View citations in EconPapers (4)
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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4565308 First version, 2023 (text/html)
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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:inetwp208
DOI: 10.36687/inetwp208
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