Evaluating a year of oil price volatility

After a period of relative stability, crude oil prices fell sharply starting in mid-2014. Over the last 14 months, the average price of oil has fallen by about 60%. Although this price volatility is not unprecedented -- oil prices also fell by over 50% during the Great Recession -- its source is som...

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Bibliographic Details
Published inEconomic review (Kansas City) p. 5
Main Authors Davig, Troy, Melek, Nida Cakir, Nie, Jun, Smith, A. Lee, Tuzemen, Didem
Format Journal Article
LanguageEnglish
Published Kansas City Federal Reserve Bank of Kansas City 22.06.2015
Subjects
American dollar
Commodities
Crude oil
Crude oil prices
Demand analysis
Economic activity
Economic growth
Energy industry
Forecasts and trends
Global economy
Great Recession
Petroleum
Petroleum industry
Petroleum production
Prices and rates
Studies
Supply & demand
Supply and demand
Volatility
United States
United States > US
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Summary:After a period of relative stability, crude oil prices fell sharply starting in mid-2014. Over the last 14 months, the average price of oil has fallen by about 60%. Although this price volatility is not unprecedented -- oil prices also fell by over 50% during the Great Recession -- its source is somewhat different. Unlike the decline during the Great Recession, only a portion of the recent oil price decline appears to be due to softening global demand. Instead, changes in expectations of future supply relative to demand appear more important. The authors review possible sources of the recent oil price decline using two empirical approaches. The authors find that shifting expectations of future oil supply -- coupled with concerns about weakening future demand -- appear to have primarily driven the recent volatility in oil prices.
ISSN:0161-2387
2163-422X