The global oil market has been vulnerable always up and down, mostly after the Middle-East started to be disturbed due to different political reasons. As the non-oil-producing countries have been feeling pressure of managing oil for their consumption, countries like Nepal who even doesn't have capacity for processing of crude oil are facing trade deficit due to huge import of oil from other countries. Nepal imported more than Rs 92 billion of oil in previous fiscal year 2011/12.
Unalmis and Unsul, in their paper on "On the Sources and Consequences of Oil Price Shocks: the Role of Storage" argue that the oil producers and buyers have started to store with precautionary and speculative motives. This paper further addresses the disturbances that are in global oil market due to competitive practice of storage.
Some highlights of the paper:
- Oil storage has been so competitive and those who store and optimally decide how much to sell or store.
- The paper refers to exogenous disturbances to oil stocks as speculative storage demand shocks. Such shocks could be interpreted as precautionary demand shocks.
- The main highlights of the paper are: (i) productivity shocks were the most important drivers of oil price (ii) ignoring storage facility in the model causes a considerable upward bias in the estimated contribution of oil supply shocks to oil price fluctuations, (iii) the variance decomposition carried out for the more recent sub-sample shows that total factor productivity shock contributed more, and oil supply and storage demand shocks contributed less to the oil price volatility which can in part explain the resilience of macroeconomic environment to the oil price hikes in 2000s.
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