Moody oil: What is driving the crude oil price?

The unparalleled surge of the crude oil price after 2003 has triggered a heated scientific and public debate about its ultimate causes. Unexpected demand growth particularly from emerging economies appears to be the most prominently supported reason among academics, suggesting that market participants did not anticipate future market conditions. We study the price dynamics after 2003 in the global crude oil market using a structural VAR model, paying particular attention to anticipative market activities. These are inferred from a time series of news items measuring the flow of publicly available information relevant for the crude oil market. We find that such forward-looking demand activities-instead of demand arising from real economic activity-have played an important role for the run-up in the price of crude oil after 2003. This indicates that market participants have anticipated a higher demand in the future, rather than having reacted to unexpected shocks from the current business cycle. We additionally find that emerging economies have not majorly contributed to the price surge.