On Oil Price Shocks: The Role of Storage

Unalmis D., Ünalmış İ., Unsal D. F.

IMF ECONOMIC REVIEW, vol.60, no.4, pp.505-532, 2012 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 60 Issue: 4
  • Publication Date: 2012
  • Doi Number: 10.1057/imfer.2012.18
  • Journal Indexes: Social Sciences Citation Index (SSCI)
  • Page Numbers: pp.505-532
  • TED University Affiliated: No


Building on recent work on the role of speculation and inventories in oil markets, the paper embeds a competitive oil storage model within a DSGE model of the U.S. economy. This enables us to formally analyze the impact of a (speculative) storage demand shock and to assess how the effects of various demand and supply shocks change in the presence of oil storage facility. The paper finds that business-cycle-driven oil demand shocks are the most important drivers of U.S. oil price fluctuations during 1982-2007. Disregarding the storage facility in the model causes a considerable upward bias in the estimated role of oil supply shocks in driving oil price fluctuations. The results also confirm that a change in the composition of shocks helps explain the resilience of the macroeconomic environment to the oil price surge after 2003. Finally, speculative storage is shown to have a mitigating or amplifying role depending on the nature of the shock. [JEL C68, E12, Q43] IMF Economic Review (2012) 60, 505-532. doi:10.1057/imfer.2012.18