The 2006–2008 oil bubble: Evidence of speculation, and prediction

Didier Sornette, Ryan Woodard and Wei-Xing Zhou

Physica A: Statistical Mechanics and its Applications, 2009, vol. 388, issue 8, 1571-1576

Abstract: We present an analysis of oil prices in USD and in other major currencies that diagnoses unsustainable faster-than-exponential behavior. This supports the hypothesis that the recent oil price run-up was amplified by speculative behavior of the type found during a bubble-like expansion. We also attempt to unravel the information hidden in the oil supply-demand data reported by two leading agencies, the US Energy Information Administration (EIA) and the International Energy Agency (IEA). We suggest that the found increasing discrepancy between the EIA and IEA figures provides a measure of the estimation errors. Rather than a clear transition to a supply restricted regime, we interpret the discrepancy between the IEA and EIA as a signature of uncertainty, and there is no better fuel than uncertainty to promote speculation! Our post-crash analysis confirms that the oil peak in July 2008 occurred within the expected 80% confidence interval predicted with data available in our pre-crash analysis.

Keywords: Econophysics; Commodities; Oil bubble; Speculation; Prediction (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:388:y:2009:i:8:p:1571-1576

DOI: 10.1016/j.physa.2009.01.011

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