Black Gold & Fool’s Gold: Speculation in the Oil Futures Market

CEEPR Working Paper No. 09-013

46 Pages Posted: 27 Sep 2009

See all articles by John E. Parsons

John E. Parsons

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: September 14, 2009

Abstract

This paper addresses the question of whether the oil price spike of 2003-2008 was a bubble. We document and discuss what is known about the level of speculation in the paper oil market. We then analyze the dynamics of the term structure of futures prices, both during the earlier period of 1985-2002 and during the spike. The dynamics of the term structure changed in important ways during this latter period, and we explain how this may have contributed to generating a bubble. We also explain how this answers the puzzle of the lack of accumulating above-ground inventories. Finally, we discuss the implications for regulatory reform of the paper oil markets.

Keywords: oil, futures, speculation, bubble

JEL Classification: G13, G15, G18, E44, Q43

Suggested Citation

Parsons, John E., Black Gold & Fool’s Gold: Speculation in the Oil Futures Market (September 14, 2009). CEEPR Working Paper No. 09-013, Available at SSRN: https://ssrn.com/abstract=1472983 or http://dx.doi.org/10.2139/ssrn.1472983

John E. Parsons (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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HOME PAGE: http://www.mit.edu/~jparsons/

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