Do Demand and Supply Shocks Explain USA's Oil Stock Fluctuations?

Abstract

In this paper using historical monthly data on the US oil stocks (Crude Oil and Petroleum Products Ending Stock-coppes), industrial production, energy use for transportation, oil production, and oil imports, we examine whether supply and demand shocks explain the apparent decline in the volatility of the growth of COPPES since about the mid-1980s. We find that nearly 70% of the variation in the US COPPES growth is explained by its supply and demand factors, each sharing about half of this variation. This is on account of sharp decline in the contribution of persistence to the US COPPES growth variation from about 47% in the pre-break period to about 17% in the post-break period. This reduction is taken up by increased contribution of demand and supply factors since mid 1980s, of which growth variances have declined on net since then. This in turn contributes to the stability of the US COPPES growth fluctuations.