Black Gold & Fool’s Gold: Speculation in the Oil Futures Market
Name
2009-013.pdf
Size
422.55 KB
Format
Adobe PDF
Checksum (MD5)
1a44ba5e59e5d3e3d203eb1d590e6910
Author(s)
Parsons, John E.
Date Issued
September 2009
Publisher
MIT Center for Energy and Environmental Policy Research
Series/Report no.
MIT-CEEPR (Series);2009-013
Abstract
This paper addresses the question of whether the oil price spike of 2003-2008 was a bubble. We document and discuss what is known about the level of speculation in the paper oil market. We then analyze the dynamics of the term structure of futures prices, both during the earlier period of 1985-2002 and during the spike. The dynamics of the term structure changed in important ways during this latter period, and we explain how this may have contributed to generating a bubble. We also explain how this answers the puzzle of the lack of accumulating above-ground inventories. Finally, we discuss the implications for regulatory reform of the paper oil markets.
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