by
The author covers the seven key steps that a physical commodity has traversed to go from being a simple raw material to a full-fledged commodity. Further, the author discusses her company’s experience with nascent markets – both frac sand and hemp – that illustrate the challenges of opacity and fragmentation as commodity markets mature.
Read Articleby
This paper develops, implements and tests a real option model for the ethanol market. The model makes precise predictions for the price of ethanol as a nonlinear function of the prices of gasoline and corn, for the magnitude of ethanol physical output in terms of the relative pricing of gasoline and corn, and for the value of an ethanol producer as that of a call option on the spread between gasoline and corn. Empirical tests for each of these predictions are supportive of the authors’ model.
Read Articleby
This paper quantifies the reaction of U.S. equity, bond futures, and foreign exchange returns to oil-price shocks. Using instrumental variables methods based on U.S. oil-inventory announcements, the authors find that equity prices decrease in response to higher oil prices before the 2007/08 crisis but increase after it. The U.S. dollar tends to depreciate against a basket of currencies in response to positive oil-price shocks, and this effect is larger after the financial crisis. By contrast, oil-price shocks have a modest effect on bond futures returns. The authors argue that changes in risk premia help to explain the time-varying effect of oil-price shocks on U.S. equity returns.
Read Articleby
This paper studies the macroeconomic consequences of oil price shocks caused by innovations in the monopoly power in the oil market. Monopoly power is interpreted as oil producers’ ability to charge a markup over marginal costs. The authors propose a novel way to identify markup shocks based on meetings of OPEC and show that markup shocks have unique macroeconomic consequences compared to supply and demand shocks. In particular, global real economic activity expands when oil producers’ monopoly power rises. A general equilibrium model suggests that higher monopoly profits attract investments in oil producing capital, which drive down marginal costs and stimulate economic growth.
Read Article View Related Presentationby
This article investigates how the size of price differentials between different grades of crude oil have changed over time. The paper shows that these price differentials have generally become smaller. In particular, the paper documents that many of them experienced a major structural break in or around 2008, after which there was a marked reduction in their means and volatilities. A growing ability of the global refinery sector to process lower-quality crude oil and the U.S. shale boom, which has unexpectedly boosted the supply of high-quality crude oil, are two factors consistent with these changes.
Read Article View Related Presentationby
This paper is the second in a two-part series. In part 1, which appeared in the Winter 2019 edition of the GCARD, the authors examined different liquidity measures and considered their relevance to the natural gas markets. In the current paper, the authors review unique features of the U.S. natural gas markets and how price formation occurs for various types of natural gas products.
Read Articleby
In this brief report, Dr. Jian Yang, the JPMCC’s Research Director, provides updates on the JPMCC’s research activities through the spring of 2020. In particular, Dr. Yang discusses the publication of an innovative study on crude oil and notes the continued impact of the 2019 symposium.
Read Reportby
In this issue of the GCARD, we are delighted to interview the JPMCC’s new Executive Director, Dr. Thomas Brady. Dr. Brady discusses how he became involved in the commodity markets and what his goals are for the JPMCC. Prior to joining the JPMCC, Dr. Brady was the Chief Economist at Newmont Mining.
Read Interview