Oil price fluctuation is a process that involves the dynamic evolution characteristics of crude oil prices. It is also highly correlated with the influencing mechanism of the different fluctuation sources. The research uses the event shock model with dummy variables to capture the influence mechanisms of the fluctuation source structure in different price positions and trend conditions. It is found that the impact of financial factors and commodity supply factors has asymmetric effects on crude oil price fluctuations.
Historically, about half of all oil price fluctuations were due to shifts in oil supplies, according to Rebelo’s team. But that is changing. It is very difficult for oil producers to vary production — it’s not like turning on or off the faucet. It’s a complicated process that can cost millions of dollars to execute.
The other half of oil price changes are caused by demand. It’s hard to predict how much a consumer will consume in the future, but it’s important to keep an eye on events that could affect supply and demand, like geopolitical instability in regions that export oil, severe weather that disrupts transport routes or the discovery of new reserves. It also takes time for consumers to switch from using other energy sources, or to increase equipment fuel efficiency, so they can quickly adjust consumption to reflect changes in price. This makes demand a much more volatile driver than supply. This explains why oil prices are so much more volatile than other products.
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