Does excess futures market demand affect the spot price of oil?

Joseph DeCoste

Energy Economics, 2025, vol. 149, issue C

Abstract: In this paper, I find novel evidence that excess demand in futures markets drives over half of the short run variation in the spot price of oil, and can explain a number of puzzling incidents of oil price behavior. Specifically, I find a major role for excess demand during the 2008 global financial crisis and the 2014 oil price crash. This relationship is much stronger after 2003, the period which is commonly associated with a rise in financialization and commodity index investment. These results are obtained using a novel sign restricted vector autoregressive oil market model that explicitly includes futures markets. The model allows for the detection of futures demand effects which feedback into spot prices through a price signaling channel, in contrast to previous studies relying solely on an assumed inventory response.

Keywords: Financialization; Futures markets; Commodity markets; Structural model; Oil market (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 G23 Q02 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:149:y:2025:i:c:s0140988325004487

DOI: 10.1016/j.eneco.2025.108621

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