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The shale revolution and shifting crude dynamics
Author(s) -
Sy Malick,
Wu Liuren
Publication year - 2020
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2745
Subject(s) - crude oil , futures contract , economics , demand shock , oil shale , shock (circulatory) , shale oil , supply and demand , futures market , financial crisis , vector autoregression , supply shock , oil supply , identification (biology) , econometrics , macroeconomics , monetary economics , financial economics , petroleum engineering , geology , medicine , monetary policy , paleontology , botany , biology
Summary Oil price fluctuates in response to both demand and supply shocks. This paper proposes a new methodology that allows for timely identification of the shifting contribution from the two types of shock through a joint analysis of crude futures options and stock index options. Historical analysis shows that crude oil price movements are dominated by supply shocks from 2004 to 2008, but demand shocks have become much more dominant since then. The large demand shock following the 2008 financial crisis contributes to the start of this dynamics shift, whereas the subsequent shale revolution has fundamentally altered the crude supply behavior.