The Oil Market Through the Lens of the Latest Oil Price Cycle
The recent behaviour of prices has polarised views about the key drivers of oil prices. One view attributes the recent behaviour in oil prices to structural transformations in the fundamentals of the oil market. An alternative view considers that oil markets have been distorted by substantial and volatile speculative financial flows. This dichotomy between fundamentals and speculation currently dominates the policy debate about the appropriate measures needed to reduce oil price volatility and to prevent a repeat of the latest price cycle. While it is convenient for some policy makers and analysts that the issues are presented in terms of this dichotomy it is too simplistic to be of use in formulating policy. Instead this presentation offers a more inclusive framework which emphasises the interactions among the various oil price determinants and the various players in the oil market. It also provides an alternative perspective on the oil price formation process based on perceptions of limited feedbacks and e increasing role of expectations and public signals.