ESSAYS ON THE GLOBAL OIL MARKET

In this paper we develop a Structural Vector Autoregressive (SVAR) model of the global market for crude oil where the forward-looking expectations of oil traders are inferred from the financial markets. Thus, we replace the global proxy for above-ground crude oil inventories with the oil futures-spot spread. The latter is defined as the percent deviation of the oil futures price from the spot price of oil and it represents a measure of the convenience yield but expressed with an opposite sign. The following model provides an economic interpretation of the residual structural shock, namely the financial market shock. This is designed to capture an unanticipated change in the benet of holding crude oil inventories that is driven by financial incentives. We find evidence that financial market shocks have played an important role in explaining the surge of the real price of oil during the period 2003-2008. We also highlight the main interesting features of five structural oil market VAR models and their implied identification structures. In addition we propose a simple qualitative method to rank different oil market VAR models. The comparative analysis offers evidence that the oil futures-spot spread represents a proper measure to capture the forward-looking expectations of oil traders.