What has driven oil prices since 2000? A structural change perspective

This paper characterizes weekly international oil price fundamentals since 2000 by analyzing the transformation of the market mechanism based on structural change perspective. Using endogenously-determined break tests that allow for changes in both level and trend, we divide the price fluctuations in the international oil market after 2000 into three stages: “Relatively calm market” period (January 07, 2000, to March 12, 2004); the “Bubble accumulation” period (March 19, 2004, to June 06, 2008,); and the “Global economic crisis” period (June 13, 2008, to September 11, 2009). The results show the existence of structural breaks refutes the utility of investigation of the full sample period as a whole. And in different structural periods the main drivers of oil price changes and their way of influence and degree are significantly distinct. Then we demonstrate the evolving process of market mechanism since 2000. Through establishing comparative models, we also quantitatively measure the roles of speculation and episodic events in oil price fluctuations.

Research highlights► We model oil price fundamentals since 2000 based on structural change perspective. ► Using endogenously break tests, we analyze market mechanism in distinct periods. ► Main drivers of oil price and their way of influence will change over time. ► Speculation and episodic events play important role on oil price changes before 2008. ► Finally we demonstrate the evolving process of market mechanism since 2000.