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Non-Linear Oil Price Dynamics: A Tale of Heterogeneous Speculators?


Address for correspondence: Stefan Reitz, Deutsche Bundesbank, Department of Economics, Wilhelm-Epstein-Str. 14, D-60431 Frankfurt, Germany. Tel.: +69 95 66 49 88; fax: +69 95 66 29 82; e-mail:


Abstract. While some of the recent surges in oil prices can be attributed to a robust global demand at a time of tight production capacities, commentators occasionally also blame the impact of speculators for part of the price pressure. We propose an empirical oil market model with heterogeneous speculators. Whereas trend-extrapolating chartists may tend to destabilize the market, fundamentalists exercise a stabilizing effect on the price dynamics. Using monthly data for West Texas Intermediate oil prices, our STR-GARCH estimates indicate that oil price cycles may indeed emerge due to the non-linear interplay between different trader types.