The fall in oil prices in 2014: the role of supply and demand components

Simona Delle Chiaie

Rue de la Banque, 2015, issue 12

Abstract: The price of oil plunged in the second half of 2014, falling by more than 40% from June to December 2014. In this article, we use a structural econometric model for the global oil market, as in Kilian and Murphy (2014), to quantify the contributions of oil supply, aggregate demand and oil-specific demand shocks to the cumulative oil price change from June to December 2014. The results obtained from the estimated model indicate that oil prices have been driven down by all three factors. However, unanticipated supply shifts explain only one-third of the oil price decline. Aggregate demand shocks associated with an unexpected weakening in global real activity and other oil-specific demand components related to changes in market expectations of future demand and supply conditions, account for a larger portion of the oil price fall.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:rueban:2015:12

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