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Discussion Paper Details

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Title: Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us

Author(s): Christiane Baumeister and Lutz Kilian

Publication Date: January 2016

Keyword(s): Oil market, Oil price expectations, Oil price shock, Peak oil and Unconventional oil

Programme Area(s): International Macroeconomics and Finance

Abstract: It has been forty years since the oil crisis of 1973/74. This crisis has been one of the defining economic events of the 1970s and has shaped how many economists think about oil price shocks. In recent years, a large literature on the economic determinants of oil price fluctuations has emerged. Drawing on this literature, we first provide an overview of the causes of all major oil price fluctuations between 1973 and 2014. We then discuss why oil price fluctuations remain difficult to predict, despite economists? improved understanding of oil markets. Unexpected oil price fluctuations are commonly referred to as oil price shocks. We document that, in practice, consumers, policymakers, financial market participants and economists may have different oil price expectations, and that, what may be surprising to some, need not be equally surprising to others.

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Bibliographic Reference

Baumeister, C and Kilian, L. 2016. 'Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11035