Is There Evidence of Supercycles in Oil Prices?
- Abdel M. Zellou (Colorado School of Mines) | John T. Cuddington (Colorado School of Mines)
- Document ID
- Society of Petroleum Engineers
- SPE Economics & Management
- Publication Date
- July 2012
- Document Type
- Journal Paper
- 171 - 181
- 2012. Society of Petroleum Engineers
- 7.4.3 Market analysis / supply and demand forcasting/pricing
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- 615 since 2007
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A number of authors have claimed that the strong upward movement in commodity prices since 2000 represents the early phase of a "supercycle" (SC) driven by the sustained rise in demand associated with industrialization and urbanization in Brazil, Russia, India, and China (BRIC). Cuddington and Jerrett (2008) provide statistical evidence on the presence of SCs in metals prices, defining SCs as cyclical components between 20 and 70 years (trough to trough) by use of the assymetric Christiano-Fitzgerald (ACF) band-pass filter (BPF).
The purpose of this paper is to address this question: Is there evidence of SCs in crude-oil prices? On one hand, one might expect the strong demand associated with industrialization and urbanization to affect energy prices in a way that is roughly similar to that for metals, as both are nonrenewable resources. On the other hand, the structure of the crude-oil market is quite different from that in other mineral markets, and that structure has changed rather dramatically over time.
Our empirical analysis suggests that there is strong evidence of SCs in oil prices in the post-World War II (WWII) period, and their timing closely matches the SC timing in metals. It appears that the global economy is currently in an expansionary phase of an SC that started from a trough in 1996. For the pre-WWII period on the other hand, the evidence for oil-price SCs is weak. Possible explanations are: (1) oil was economically less important during European and North American industrialization episodes; (2) pervasive US regulation; (3) large supply-side shocks caused by new discoveries (e.g., in east Texas and later in the Middle East); and (4) periods of oligopolistic price-setting behavior.
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