A 2019 Bank of Canada (BOC) report described the usefulness of an autoregressive structural vector model (SVA) for conditional projections of global GDP growth and oil consumption relative to four types of oil shocks.  The autoregressive structural vector model was proposed in 1982 by the American econometrician and macroeconomist Christopher A. Sims as an alternative statistical framework for macroeconomists. According to the BOC report – using the SVAR model – “oil supply shocks were the dominant force during the decline in oil prices in 2014-15”.  The VSR approach is also useful for studying the relationship between stock market volatility and oil price volatility. Empirical evidence suggests that conditioned volatilities in U.S. oil prices, interest rates, and inflation rates each have a significant impact on conditioned equity market volatility. When the price of Brent oil fell rapidly to $58.71 in November 2018, to more than 30% of its peak, the largest 30-day decline since 2008 – factors included increased oil production in Russia, some OPEC countries and the United States, which worsened global oversupply.  In 2020, rail, road and disused oil tankers and pipelines will also be used to store crude oil for the contango trade.
 For WTI crude oil to be delivered in May 2020, the price had dropped to -$40 per barrel due to lack of or expensive warehousing (i.e., buyers would be paid by sellers for delivery of crude oil).  LNG carriers and LNG tanks can also be used for long-term storage of crude oil, as LNG cannot be stored long-term due to evaporation. Fracking tanks are also used to store crude oil that deviates from their normal use.  Crude oil is also sold on a spot basis, that is, the on-site purchase of a single shipment for immediate delivery at the current market price. The two major oil shocks of the 1970s mentioned above were characterized by low growth, high unemployment and high inflation (also often referred to as periods of stagflation). It is not surprising that changes in oil prices are seen as a major source of economic volatility. During the 1979 oil crisis, global oil supply was “limited” due to the 1979 Iranian revolution – the price of oil “doubled”, and then began to “decline in real terms from 1980, undermining OPEC`s power over the world economy,” according to The Economist.  NYMEX launched crude oil futures in 1983, and PEI launched theirs in June 1988.  World crude oil prices were published on the NYMEX and IPE crude oil futures market.  Volatile crude oil prices can cause problems for the global economy. These crude oil futures contracts helped mitigate “economic risks related to international fluctuations in crude oil spot prices.”  By 2019, NYMEX and ICE had become “representative representatives of the global crude futures market” – an important factor in the global economy.  Crude oil futures introduce uncertainty into the market and contribute to fluctuations in crude oil prices.
 The price of oil remained “relatively constant” from 1861 to the 1970s.  In Daniel Yergin, winner of the 1991 Pulitzer Prize, The Prize: The Epic Quest for Oil, Money, and Power, Yergin describes how the “oil supply management system” – operated by “international oil companies” – had “collapsed” in 1973. : 599 Yergin notes that the role of the Organization of the Petroleum Exporting Countries (OPEC), established in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela:499 has radically changed in controlling the price of oil. Since 1927, a cartel called the “Seven Sisters” — five of which were headquartered in the United States — had controlled prices since the so-called Red Line Agreement of 1927 and the Achnacarry Agreement of 1928, and had achieved a high level of price stability in 1972, according to Yergin.  Empirical evidence for the relationship between oil price movements and equity price movements is mixed. Empirical models can be estimated from daily, monthly, quarterly or annual data, and the analysis can be performed at the firm, industry or macroeconomic level. The decline in aggregate demand is putting pressure on the price level.
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