This paper documents the determinants of real oil price in the global market based on
SVAR model embedding transitory and permanent shocks on oil demand and supply as
well as speculative disturbances. We find evidence of significant differences in the
propagation mechanisms of transitory versus permanent shocks, pointing to the
importance of disentangling their distinct effects. Permanent supply disruptions turn out to
be a bigger factor in historical oil price movements during the most recent decades, while
speculative shocks became less influential.
This paper investigates the causes of extreme fluctuations in commodity prices from 1990 to 2010. Analyzing two very distinct commodities-crude oil and fine wine, we find that macroeconomic factors are the main determinants of commodity prices. Although supply constraints have the expected effect, aggregate demand growth is the key factor. The empirical results show that while advanced economies account for more than half of global consumption, emerging economies make up the bulk of the incremental change in demand, thereby having a greater weight in commodity price formation. The results also show that the shift in the composition of aggregate commodity demand is a recent phenomenon.