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Article

Examining the Role of Financial Investors and Speculation in Oil Markets

Denis Babusiaux, Axel Pierru and Frédéric Lasserre
The Journal of Alternative Investments Summer 2011, 14 (1) 61-74; DOI: https://doi.org/10.3905/jai.2011.14.1.061
Denis Babusiaux
is a professor of economics at IFP School in France.
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  • For correspondence: denis.babusiaux@mines-paris.org
Axel Pierru
is an economist at IFP Energies nouvelles in France.
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  • For correspondence: axel.pierru@ifpen.fr
Frédéric Lasserre
is Global Head of Commodities Research at Société Générale Corporate & Investment Banking in France.
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  • For correspondence: frederic.lasserre@sgcib.com
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Abstract

Repeated oil-price spikes have generated a great deal of controversy about the role played by speculation in derivatives markets. A number of analysts have suggested that the speculative positions of financial investors played a major part in the 2008 oil-price hike. In contrast, some economists claim that oil inventories did not increase sufficiently for speculation to be the cause of the run up in oil prices. This article presents these two apparently contradictory arguments and attempts to reconcile them by emphasizing the inertia of the world oil–demand response to price variations. The authors present a number of factors that help reconcile these beliefs, including incomplete oil inventory statistics, increased ground storage, the use of inventories for current production, and the impact of a “focal price” that is inconsistent with the immediate market fundamentals.

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The Journal of Alternative Investments: 14 (1)
The Journal of Alternative Investments
Vol. 14, Issue 1
Summer 2011
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Examining the Role of Financial Investors and Speculation in Oil Markets
Denis Babusiaux, Axel Pierru, Frédéric Lasserre
The Journal of Alternative Investments Jun 2011, 14 (1) 61-74; DOI: 10.3905/jai.2011.14.1.061

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Examining the Role of Financial Investors and Speculation in Oil Markets
Denis Babusiaux, Axel Pierru, Frédéric Lasserre
The Journal of Alternative Investments Jun 2011, 14 (1) 61-74; DOI: 10.3905/jai.2011.14.1.061
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  • Article
    • Abstract
    • BRIEF OVERVIEW OF OIL DERIVATIVES MARKETS
    • BEHAVIOR OF FINANCIAL INVESTORS AND THE POSSIBLE ROLE OF SPECULATION
    • THE ECONOMISTS’ POSITION: STORAGE IS A NECESSARY SIGNATURE OF SPECULATION
    • TWO IRRECONCILABLE POINTS OF VIEW?
    • ADDITIONAL REMARKS ABOUT INVENTORIES AND PRICE
    • AN APPROACH EMPHASIZING DEMAND INERTIA
    • CONVERGENCE OF EXPECTATIONS AND THE “FOCAL POINT” OF THE MARKET
    • SUMMARY AND CONCLUSIONS
    • ENDNOTES
    • REFERENCES
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