Fundamentals affecting oil prices : an empirical study

Abstract EN

This paper studies the oil price volatility and investigates the factors that affect the spot oil price and might have contributed to the oil price increase.

After approaching the oil price volatility, a linear model for spot oil price determination is estimated.

Five variables: the spot oil price, the oil demand and supply, the $ exchange rate value and activity in future markets validate a long-run relationship.

Together these variables allow the model to perform well and explain the winner situation of oil exporter countries in the short and long term.

However the estimation of the Vector Error Correction Model (VEC) shows that the oil supply influences negatively the spot oil price in long term and, the oil demand as well as the Special Drawing Receipt (SDR) / $ exchange rate are significant for oil price determination in the short term only while, the activity in future market is insignificant in determining spot oil price in short and long term.