Oil prices remained relatively low but volatile in the 2015-17 period, largely due to declining and uncertain demand from China. This follows a prolonged decline from around $110 per barrel in June 2014 to below $30 in January 2016, due in large part to increased supply of shale oil in the US, which was spurred by the development of fracking technology. Most dynamic Cournot models focus on supp...

According to “Hotelling rule” price of an “exhaustible resource” exceeds its marginal cost of production in perfect competition equilibrium by amount equal to the opportunity cost of depleting the resource now rather than next periods. This cost is called “scarcity rent”. Oil price exceeds its marginal extraction costs significantly. This can be attributed two different sources: effect of scarc...

If commercial producers or financial investors use futures contracts to hedge against commodity price risk, the arbitrageurs who take the other side of the contracts may receive compensation for their assumption of nondiversifiable risk in the form of positive expected returns from their positions. We show that this interaction can produce an affine factor structure to commodity futures prices,...

This paper contains short term monthly forecasts of crude oil prices using compumetric methods. Compumetric forecasting methods are ones that use computers to identify the underlying model that produces the forecast. Typically, forecasting models are designed or specified by humans rather than machines. Compumetric methods are applied to determine whether models they provide produce reliable fo...

We introduce a novel approach to estimating latent oil risk factors and establish their significance in pricing non-oil securities. Our model, which features four factors with simple economic interpretations, is estimated using both derivative prices and oil-related equity returns. The fit is excellent in and out of sample. The extracted oil factors carry significant risk premia, and are signif...