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
- 5 in the last 30 days
- 591 since 2007
- Show more detail
- View rights & permissions
|SPE Member Price:||USD 10.00|
|SPE Non-Member Price:||USD 30.00|
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.
|File Size||823 KB||Number of Pages||11|
Baxter, M. and King, R.G. 1999. Measuring Business Cycles: ApproximateBand-Pass Filters for Economic Time Series. Review of Economics andStatistics 81 (4): 575-593. http://dx.doi.org/10.1162/003465399558454.
Bennaceur, K. 2010. World Energy Congress 2010 interview.Energy2point0, 15 September 2010, http://www.energy2point0.com/2010/09/15/kamel-bennaceur-chief-economist-schlumbergerw/(accessed May 2012).
BP. 2011. Statistical Review of World Energy 2011: BP Energy Outlook 2030,http://www.bp.com/sectionbodycopy.do?categoryId=7500&contentId=7068481(accessed May 2012).
Christiano, L.J. and Fitzgerald, T.J. 2003. The Band Pass Filter.International Economic Review 44 (2): 435-465. http://dx.doi.org/10.1111/1468-2354.t01-1-00076.
Comin, D. and Gertler, M. 2006. Medium-Term Business Cycles. AmericanEconomic Review 96 (3): 523-551. http://dx.doi.org/10.1257/aer.96.3.523.
Cuddington, J.T. and Jerrett, D. 2008. Super Cycles in Real MetalsPrices[quest]. IMF Staff Papers 55 (4): 541-565. http://dx.doi.org/10.1057/imfsp.2008.19.
Cuddington, J.T. and Urzúa, C.M. 1989. Trends and Cycles in the Net BarterTerms of Trade: A New Approach. The Economic Journal 99(396): 426-442. http://dx.doi.org/10.2307/2234034.
Cuddington, J.T. and Zellou, A.M. 2012. A Simple Mineral Market Model: UnderWhat Conditions Will It Produce Super Cycles in Prices? Report, Division ofEconomics and Business, Colorado School of Mines, Golden, Colorado.
Cuddington, J.T., Ludema, R., and Jayasuriya, S.A. 2007. Prebisch-SingerRedux. In Natural Resources: Neither Curse Not Destiny, D. Lederman andW.F. Maloney. Stanford, California: Stanford University Press.
Deaton, A. and Laroque, G. 1992. On the Behaviour of Commodity Prices.The Review of Economic Studies 59 (1): 1-23. http://dx.doi.org/10.2307/2297923.
Deaton, A. and Laroque, G. 1996. Competitive Storage and Commodity PriceDynamics. The Economic Journal 104 (5): 896-923. http://dx.doi.org/10.1086/262046.
Dvir, E. and Rogoff, K.S. 2009. Three Epochs of Oil. Working Paper No.14927, National Bureau of Economic Research, Washington, DC.
Hamilton, J.D. 2011. Historical Oil Shocks. Working Paper No. 16790,National Bureau of Economic Research, Washington, DC.
Heap, A. 2005. China--The Engine of a Commodities Super Cycle. ResearchReport, Citigroup Global Markets/Smith Barney, Sydney, Australia (31 March2005), http://www.fallstreet.com/Commodities_China_Engine0331.pdf.
IMF. 2010. World Economic Outlook: Recovery, Risk, and Rebalancing. WorldEconomic and Financial Surveys, International Monetary Fund, Washington, DC(October 2010), http://www.imf.org/external/pubs/ft/weo/2010/02/pdf/text.pdf.
Jerrett, D. and Cuddington, J.T. 2008. Broadening the statistical search formetal price super cycles to steel and related metals. Resour. Policy 33 (4): 188-195. http://dx.doi.org/10.1016/j.resourpol.2008.08.001.
Jerrett, D.L. 2010. Trends and Cycles in Metals Prices. PhDdissertation, Colorado School of Mines, Golden, Colorado.
Kuznets, S. 1973. Modern Economic Growth: Findings and Reflections. TheAmerican Economic Review (AER) 63 (3): 247-258.
Tol, R.S.J., Pacala, S.W., and Socolow, R. 2006. Understanding Long-TermEnergy Use and Carbon Dioxide Emissions in the Usa. Working Papers No.2006.107, Fondazione Eni Enrico Mattei, Milan, Italy (August 2006), http://ideas.repec.org/p/fem/femwpa/2006.107.html.
Yergin, D. 1991. The Prize: The Epic Quest for Oil, Money, and Power.New York: FreePress.