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    Speculation, Fundamentals, and the Price of Crude Oil

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    Author
    Medlock, Kenneth B. III
    Date
    2013
    Abstract
    The causes and consequences of rising oil price over the past decade has been the subject of much debate. The role of speculation in financial markets has come increasingly under the microscope with many economists arguing that in commodity markets, such as oil, inventory adjustment should prevent speculative pressures from unduly influencing price. However, if demand and supply are relatively inelastic (not very price responsive) in the short run, then inventory adjustment can be slow to occur. In turn, the theory presented herein suggests that speculative activity can exacerbate price movements that are hinged on underlying market fundamentals. In other words, when constraints are present, inventory adjustment can be sluggish, which will reinforce the speculative notion that markets are becoming tighter. This will continue until something happens to unhinge that expectation, such as inventory build or economic collapse. Otherwise, speculation cannot exert an influence on price. This paper investigates whether speculative pressures can exert an influence on the price of storable commodities, such as crude oil and natural gas.
    Citation
    Medlock, Kenneth B. III. "Speculation, Fundamentals, and the Price of Crude Oil." (2013) James A. Baker III Institute for Public Policy of Rice University: http://bakerinstitute.org/research/speculation-fundamentals-and-price-crude-oil/.
    Type
    Working paper
    Publisher
    James A. Baker III Institute for Public Policy of Rice University
    Citable link to this page
    https://hdl.handle.net/1911/91315
    Link to related resources
    http://bakerinstitute.org/research/speculation-fundamentals-and-price-crude-oil/
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    Home | FAQ | Contact Us | Privacy Notice | Accessibility Statement
    Managed by the Digital Scholarship Services at Fondren Library, Rice University
    Physical Address: 6100 Main Street, Houston, Texas 77005
    Mailing Address: MS-44, P.O.BOX 1892, Houston, Texas 77251-1892
    Site Map