Oil price fluctuation is a complex phenomenon. It is no longer a simple supply-demand relationship; with the continuous development of crude oil commodity markets and derivatives market, the formation mechanism has undergone profound changes. According to the nonlinearity theory, we can decompose the source information structure of crude oil price fluctuation into two core components: commodity attribute and financial attribute.
We use the state-space model to dynamically investigate the correlation between the asymmetry of crude oil price fluctuation and the structure of fluctuation sources. We find that the asymmetry of crude oil price fluctuation tends to increase over time, and the trend has a significant correlation with the structure of fluctuation sources. We also find that different types of external event shocks affect the asymmetry of crude oil price fluctuation, and the impact is correlated with the structure of fluctuation sources.
While a rise in oil prices benefits consumers and some businesses, it can be difficult for the oil industry to adjust its production capacity quickly enough to keep prices down. As a result, the world’s oil companies are struggling to survive. And a sudden decline in oil prices can blow a hole in government budgets and change global geopolitics seemingly overnight. That’s why it is important to understand the factors that drive oil prices up and down, from OPEC policy to financial speculation. Whether you are driving or heating your home, the price of crude oil impacts every aspect of our daily lives.