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International Dynamics of Oil Prices in Four Dimensions: An Analytical Investigation

This article presents an analysis method for oil price movements that tries to combine different factors such as technology, economics, fear, and temporal relations, which are illustrated by fundamental indicators. Analysis method also allows the visualization of these relations with system dynamics figures. It aims to propose a set of these macro factors based on fundamental indicators to improve future forecasts. The vantage point is more of a practitioner’s reference point, since theory generally follows practice. By grouping the effects in categories, it tries to guide the reader to understand the “nuts and bolts” of oil price dynamics. While illustrating the points, practical examples are associated with the explanations. The ideas presented are categorized in an analytical manner to help the reader find his/her way. At the end of the article, the possible major events that could trigger the next oil crises are listed.

International Dynamics of Oil Prices in Four Dimensions An Analytical
UAE Energy Minister Suhail al-Mazrouei speaks during the Gulf Intelligence UAE Energy Forum in Abu Dhabi on January 13, 2015. AFP PHOTO / STR
 

Introduction

Oil is considered the world economy’s bloodline. It is both an indicator and the determinant of economic growth. It is a curse and a necessity blended into a single commodity. It is a source of evil and a source of good, as prices oscillate between peaks and pits, providing new insights in every cycle. Oil price hikes and crashes are different every time and rarely anyone predicts a hike or a crash with correct timing. For the experts “it is different this time,” for the ignorant “it was obvious”. This eccentric nature of oil dynamics is the subject of thousands of studies. Still this very commodity is the quintessential example for those seeking to understand complex interactions between economy, finance, and geopolitics.

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