Crude oil prices, inventory, and speculation -

Abstract

This paper explores the impact of investor flows, particularly the net long position, and the crude-oil spot market conditions. I argue that the persistent and growing number of non-commercial speculation, specifically the long futures positions in the crude futures market has had a statistically and economically significant impact on crude oil prices. Utilizing data presented by the Commodity and Futures Trading Commission and the US Energy Information Administration, we show evidence that speculative positions in the crude oil markets, specifically the Crude Net Long [(non-commercial long)-(non-commercial short)] positions in these markets have allowed prices to drift from fundamentals and manipulating prices. We present evidence that the Crude Net Long speculative positions affect crude oil prices more so than real economic activity such as supply, demand, and inventory accumulation. The findings suggest that speculation is the leading determinant of crude oil prices.