Crude Oil Price Fluctuations: a Forty-Year Examination

Stephanie Price-Cummings, and Dr. Liang Hu, Department of Economics, Wayne State University, 42 W Warren Ave, Detroit, MI 48207

Crude oil is one of the most important commodities in the global economy and fluctuations in its' prices have been observed over the past forty years. Various factors such as geopolitical events, surging global demand, overproduction, and new technology-driven by artificial intelligence play a role in determining crude oil prices. This paper conducts three sequential analyses. First, it examines the booms and busts in crude oil prices and analyzes the events that caused these cycles. Topics covered include the history of energy trade agreements, political disputes and wars, OPEC decisions, industrialization, and global supply and demand. Second, we apply economic theories to investigate how oil price shocks affect the economy through various channels. From consumers’ perspective, unexpectedly high oil prices, and hence higher gasoline prices would cause the loss of discretionary income in households. Moreover, oil price shocks affect expectations about the future path of the price of oil. From firms' perspective, oil price fluctuations affect the cash flow of earlier investment decisions by manufacturing firms. The transmission mechanism is also linked to macroeconomic outcomes including inflation, output, employment, and wages. Expected results from the nominal price of oil will likely showcase that financial markets are more correlative than causational and are more linked during expansionary periods in the global business cycle. Third, a time series econometric approach is employed to quantify the effect of economic factors on predicting future oil prices in an attempt to explain the cause, measure the impact that the global economy has on price fluctuations, and explain why it is difficult to predict the price of oil. Preliminary analysis shows that global demand for oil, proxied by the world production index published by the OECD, is a major driving factor, whilst U.S. gross domestic product has a less significant impact on future real oil prices.

Additional Abstract Information

Presenter: Stephanie Price-Cummings

Institution: Wayne State University

Type: Oral

Subject: Economics

Status: Approved

Time and Location

Session: Oral 5
Date/Time: Tue 12:30pm-1:30pm
Session Number: 511
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