Navigating the Oil Bubble: A Non-linear Heterogeneous-agent Dynamic Model of Futures Oil Pricing

Giulio Cifarelli and Paolo Paesani
Authors registered in the RePEc Author Service: Giulio Cifarelli ()

The Energy Journal, 2021, vol. Volume 42, issue Number 5

Abstract: We investigate short-term futures oil pricing over the 20032019 time-period in order to analyze the bubble-like dynamics, which characterizes the 20072009 years according to a large body of recent literature. Our research, based on the LPPL methodology and a flexible three-agent model (hedgers, fundamentalist speculators and chartists), confirms the presence of a bubble price pattern, which we attribute to the strong destabilizing behavior of speculators. In our view, this can be related to incorrect interpretation of market signals (or to the inability of trading against the market), especially by fundamentalists, combined with imitation across different categories of agents. This sets off positive feedback reactions along with self-reinforced herding of the kind best detected by the LPPL methodology.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Navigating the oil bubble: A non-linear heterogeneous-agent dynamic model of futures oil pricing (2018)
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