Disentangling the determinants of real oil prices

- We use an SVAR with sign restriction to disentangling oil price determinants.
- Oil price changes in recent years are mainly caused by demand shocks.
- The role of speculation in oil price changes is very minor.
- Both China's and the US's oil demand have important effects on oil prices.

In this study, we quantify the impacts of economic fundamentals and derivative market speculation on the real price of crude oil. Using a structural VAR with sign restriction, we determine that oil demand from the US and China, particularly the latter one, plays a crucial role in oil price changes after the year 2000. The contribution of speculation does not exceed 10% of oil price variations in our sample period.