Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129351
Authors: 
Baffes, John
Kose, M. Ayhan
Ohnsorge, Franziska
Stocker, Marc
Year of Publication: 
2015
Series/Report no.: 
Koç University-TÜSİAD Economic Research Forum Working Paper Series 1504
Abstract: 
Following four years of relative stability at around $105 per barrel, oil prices have declined sharply since June 2014. This paper presents a comprehensive analysis of the sources of the recent decline in prices, and examines its macroeconomic, financial and policy implications. The recent drop in prices is a significant, but not an unprecedented event as it has some significant parallels with the price collapse in 1985-86. The recent decline has been driven by a number of factors: several years of upward surprises in the production of unconventional oil; weakening global demand; a significant shift in OPEC policy; unwinding of some geopolitical risks; and an appreciation of the U.S. dollar. Although the relative importance of each factor is difficult to pin down, OPEC's renouncement of price support and rapid expansion of oil supply from unconventional sources appear to have played a crucial role since mid-2014. The oil price drop will lead to substantial income shifts from oil exporters to oil importers resulting in a net positive effect for global activity over the medium term. Although several factors could counteract its impact on global growth and inflation, the drop in oil prices will pose significant challenges for monetary, fiscal, and structural policies.
Subjects: 
commodity prices
2014 oil price decline
macroeconomic implications
supply factors
demand factors
unconventional oil production
global output
global inflation
JEL: 
Q40
Q41
Q43
F40
E32
E62
Document Type: 
Working Paper

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