Abstract
This paper studies the US crude oil (CO) market and its structural changes. The theory of exhaustible resources and the fundamentals of crude oil supply and demand form the theoretic foundation of our research. The role of a set of recent drivers of oil prices in creating short-term shocks is then investigated. Such shocks cause deviations in the US CO market from the efficient-market hypothesis. In our empirical investigations, we implemented the modified rescaled range analysis, the Brock-Dechert-Scheinkman test and the maximum Lyapunov exponent test. The sample period ranges from 1986 to 2008 and two subperiods are considered: the energy crisis of 1990-91 and the financial meltdown in 2007-8. The findings supplement prior works on chaos theory and show temporary low-dimensional chaotic processes in the US CO market during periods of shocks. However, there is no evidence of persistent chaotic dynamics in the US CO market. Although the results do not indicate any structural changes in the US CO market, we find clear evidence of cyclical changes. In short, despite short-term shocks creating biased random-walk behavior in CO prices in the short term, the behavior of the US CO market is consistent with supply and demand fundamentals.
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