Factors behind the Price of Oil: Vector Error Correction (VEC) Analysis

Nikola Kutin (1, 2)

1 LEMNA - Laboratoire d'économie et de management de Nantes Atlantique
2 National University of Management

The current paper observes the factors behind the oil price. We use monthly statistics in order to analyze the relation between Europe Brent Spot Prices, S&P 500 Futures, Gold Futures, production of crude oil by OPEC member states, U.S. Crude Oil Rotary Rigs in operation and Crude Oil stocks in OECD member states. The results suggest that there is a cointegration between these variables. However, only two variables, Number of Rotary Rigs in US and Stocks in OECD, appear significant and have a short-run causality on the price of oil. Moreover, Price of oil (Brent), Production of OPEC and the number of Oil rigs appear to have a long-run relation. We have also established the existence of Granger Causality between stocks of crude oil in OECD countries and the price of oil. Our study concludes that the oil production of US and the policies of OECD member states have a significant impact on the oil price.

Keywords: Oil price; Vector Error Correction Model; Cointegration; Factors; OECD; OPEC; Granger Causality.; Oil price

Domains: Economics and Finance; Business administration

Nikola Kutin. Factors behind the Price of Oil: Vector Error Correction (VEC) Analysis. NUM research series, 2017. ⟨hal-03697581⟩