Economic analysis of crude oil commodity price

Olga Dzyubak

Bachelor's thesis

Abstract:

This thesis investigates the underlying factors behind the crude oil price changes, using a time-varying approach for the period from 1950 to 2014. The analysis is an extension of previous studies of oil market determinants and is to our knowledge the only time-varying analysis for a broader set of explanatory variables. By allowing the parameter coefficients to vary over time, we are able to identify and describe structural changes in the crude oil market during the time period studied. Our analysis suggests that the crude oil market participants have been more focused on expectations, and draw less attention to fundamental factors, during the time period examined. We do not find that the positions and steps of financial investors by itself cause changes in the crude oil price significantly. However, we show that the entry of new market participants has influenced changes in the process of crude oil price setting, which has become more similar to the process in financial markets. The time-varying analysis also reveals that changes in world economic activity have a particularly strong relationship with crude oil price changes during the economic recession and expansion. We find that OPEC has been an important factor in recent years, not by virtue of being a price setter, but by the organization is diminishing ability to operate as swing producer. Lack of OPEC spare capacity in the recent years caused large imbalances in the world crude oil market, as OPEC historically has represented the only major buffer on the supply side. The aim of this thesis, which is identify and evaluate main factors behind oil price changes, was reached. For the reaching of this target we used such methods as time-varying model; determination and analysis of maximal, minimal and medium values; analysis of the mutual dependence of all significant factors that can influence crude oil price using regressive and correlation models.

Keywords

Crude oil prices, monetary policy, economic analysis

Language used: English

Date on which the thesis was submitted / produced: 11. 3. 2016

Thesis defence

• Supervisor: Ing. Petr Procházka, MSc Ph.D.

Czech University of Life Sciences Prague

Faculty of Economics and Management

Bachelor programme / field:
Economics Policy and Administration / Business Administration