What is behind the increase in oil prices? Analyzing oil consumption and supply relationship with oil price

Andres Gallo, Paul Mason, Steve Shapiro and Michael Fabritius

Energy, 2010, vol. 35, issue 10, 4126-4141

Abstract: The continuing increases in oil prices have renewed the argument over the real culprits behind these movements. The growth in demand for oil in international markets, especially from the United States and China, is often identified as the main source of consumption pressure on prices, and thus the upward trend in oil prices. This paper uses unit root tests with two endogenous breaks to analyze the characteristics of oil prices, production, and consumption for several countries. By taking into account structural breaks, we find that many countries’ oil consumption and oil prices are stationary, while other countries are not. We also perform causality tests to determine the direction of any possible relationship between oil price and oil consumption and production. Our statistical analysis reveals that production variables cause oil prices, while oil prices tend to cause consumption. As a result, we claim that the blame for the recent fluctuations in oil prices is more appropriately associated with supply factors, not consumption influences.

Keywords: Q40 Energy general; Q41 Energy-supply and demand; L71: Industry studies – mining, extraction, and refining: hydrocarbon fuels; C22: Time series models (search for similar items in EconPapers)
JEL-codes: C22 L71 Q40 Q41 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:35:y:2010:i:10:p:4126-4141

DOI: 10.1016/j.energy.2010.06.033

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