Ron Alquist

The Role of Financial Speculation in Driving the Price of Crude Oil

Over the past 10 years, financial firms have increased the size of their positions in the oil futures market. At the same time, oil prices have increased dramatically. The conjunction of these developments has led some observers to argue that financial speculation caused the run-up in oil prices. Yet several arguments cast doubt on the validity of this claim. First, although the stock of open futures contracts is many times larger than the flow of oil consumption in the United States, comparing these two statistics is misleading. Stocks are not measured with respect to a specific unit of time but flows are, so the two are not directly comparable. Second, empirical analysis shows that changes in financial firms’ positions do not predict oil-price changes, but that oil-price changes predict changes in positions. Third, the evidence indicates that financial firms’ positions did not cause the market to expect persistent price increases during 2007/08. Other explanations for the increase in oil prices include macroeconomic fundamentals, such as interest rates and increased demand from emerging Asia. Of these two explanations, the one that seems most consistent with the facts explains oil-price fluctuations in terms of large and persistent demand shocks related to growth in global real activity in the presence of supply constraints.

Tracking the Euro's Progress

The evolution of the euro since its inception has appeared inexplicable. This paper develops a monetary model of the euro/US dollar exchange rate to track the progress of the currency, both before and after Stage 3 EMU. The relationship between the exchange rate, money stocks, GDP, interest and inflation rates, and prices is identified. The observed patterns of behaviour during the 1990s are used to predict the euros value up to mid-2000; a consistent finding is that the euro is over-predicted by 23-30%. This finding is robust to the use of alternative sample periods and alternative estimation methodologies, as long as each of the variables is treated as endogenous. This monetary model does not give much weight to factors such as productivity. However, the past evolution of European exchange rates suggests that productivity trends are indeed important. Some estimates suggest that an annual one percentage point in the intercountry differential in tradable-nontradable productivity causes a 0.85-1.7% real appreciation of a currency. Since recent sectoral productivity data are unavailable, we rely upon potential GDP measures to assess likely trends in the euro. We conclude that without an upward shift in Euroland potential growth, the euro will tend to depreciate over time. Copyright 2000 by Blackwell Publishers Ltd.

The Euro and the Productivity Puzzle: An Alternative Interpretation

This paper documents the evidence for a productivity based model of the Dollar/Euro real exchange rate over the 1985-2001 period. Cointegrating relationships between the real exchange rate and productivity, government spending and the real price of oil are estimated using the Johansen (1988) and Stock-Watson (1993) procedures. We find that each percentage point in the US-Euro area productivity differential results in a five percentage point real appreciation of the dollar. This finding is robust to the estimation methodology, the variables included in the regression, and the sample period. We conjecture that productivity-based models cannot explain the observed patterns with the standard set of assumptions, and describe cases in which the models can be reconciled with the observed data.

How Important is Liquidity Risk for Sovereign Bond Risk Premia? Evidence from the London Stock Exchange

This paper uses the framework of arbitrage-pricing theory to study the relationship between liquidity risk and sovereign bond risk premia. The London Stock Exchange in the late 19th century is an ideal laboratory in which to test the proposition that liquidity risk affects the price of sovereign debt. This period was the last time that the debt of a heterogeneous set of countries was traded in a centralized location and that a sufficiently long time series of observable bond prices are available to conduct asset-pricing tests. Empirical analysis of these data establishes three new results. First, sovereign bonds with wide bid-ask spreads earn 3-4% more per year than bonds with narrow bid-ask spreads, and the difference is reflected in greater sensitivity to innovations in market liquidity. Second, small sovereign bonds, as measured by market value, earn 1.8-3.5% more per year than large sovereign bonds, and the difference is also reflected in their exposure to innovations in market liquidity. Third, market liquidity is a state variable important for pricing the cross-section of sovereign bonds. This paper thus provides estimates of the quantitative importance of liquidity risk as a determinant of the sovereign risk premium and underscores the significance of market liquidity as a nondiversifiable risk.

The Comovement in Commodity Prices : Sources and Implications

We present a simple macroeconomic model with a continuum of primary commodities used in the production of the final good, such that the real prices of commodities have a factor structure. One factor captures the combined contribution of all aggregate shocks which have no direct effects on commodity markets other than through general equilibrium effects on output, while other factors represent direct commodity shocks. Thus, the factor structure provides a decomposition of underlying structural shocks. The theory also provides guidance on how empirical factors can be rotated to identify the structural factors. We apply factor analysis and the identification conditions implied by the model to a cross-section of real non-energy commodity prices. The theoretical restrictions implied by the model are consistent with the data and thus yield a structural interpretation of the common factors in commodity prices. The analysis suggests that commodity-related shocks have generally played a limited role in global business cycle fluctuations.

Did Adhering to the Gold Standard Reduce the Cost of Capital

A commonly cited benefit of the pre‐World War One gold standard is that it reduced the cost of international borrowing by signaling a country’s commitment to financial probity. Using a newly constructed data set that consists of more than 55,000 monthly sovereign bond returns, we test if gold‐standard adherence was negatively correlated with the cost of capital. Conditional on UK risk factors, we find no evidence that the bonds issued by countries off gold earned systematically higher excess returns than the bonds issued by countries on gold. Our results are robust to allowing betas to differ across bonds issued by countries off‐ and on‐gold; to including proxies that capture the effect of fiscal, monetary, and trade shocks on the commitment to gold; and to controlling for the effect of membership in the British Empire.

A blessing in disguise: The implications of high global oil prices for the North American market

This study produces an attempt to estimate the cost of future global energy supplies. The approach chosen to address this concern relies on a comparative static exercise of estimating the cost of three energy scenarios representing different energy futures. The first scenario, the business as usual scenario, predicts the future energy-mix based on the energy plans held by major countries. The second scenario is the renewable energy scenario, where as much of the primary energy supply as possible is replaced by renewable energy by 2050. The cost of the renewable energy generating technologies and their theoretical potential are taken into account in order to create a plausible scenario. The third scenario, the nuclear case, is based on the use of nuclear and renewable energy to replace fossil-fuels by 2050. Endogenous learning rates for each technology are modeled using an innovative approach where learning rates are diminishing overtime. It results from the analysis that going fully renewable would cost between -0.4 and 1.5% of the global cumulated GDP over the period 2009-2050 compared to a business as usual strategy. An extensive use of nuclear power can greatly reduce this gap in costs.The Miocene alkali basaltic rocks cover the northeastern part of Jordan, within Harrat Al-Shaam plateau. The volcanic concentrated along the Dead Sea boundary and spread around the north east of Jordan area, and was considered as interplat volcanic field in Jordan. The volcanic basalt is associated with xenoliths fragmental rocks or xenocryst minerals. Nine samples were collected from the study area and analyzed for XRD, XRF and SEM. These samples presented the xenoliths rocks and minerals existing in the study area. This study is focused on the garnet and pyroxene xenoliths minerals in Tulayl Al-Hasna area within Ufayhim Formation. Hand samples are characterized by coarse aggregates of garnets up to (2 cm in diameter) with dark brown to red color, and highly fresh fractures. Also, the pyroxene (<1.5 cm) with gray to dark green color, and the olivine (range 3 4 mm) are pale green to dark green and pale yellowish color. In thin sections, plagioclase phenocryst in the garnet presented corona texture. In addition, garnet surrounded by orthopyroxene refers to kelyphite texture. There are two types of kelyphite texture fibers and radial as shown in Scanning Electron Microscope photomicrograph. The mineralogical analyses of garnet for X-Ray Diffraction are composed of almandine, pyrope and majorite. The existence of minerals reflects the high pressure and temperature of the upper mantle origin. The chemical analysis showed the average composition of garnet as follow (Alm 42.78, Pyro 41.04, Gross 16.18), pyroxene (Wo 16.90, Fs 20.37, En 62.73). This referred to presentation of the following elements Mg, Fe and Ca in the garnet. As a result, the basaltic garnet xenoliths were from shallow lithosphere mantle origin.Context and objectives Fast Sodium Reactor (FSR) is one of the most promis ing nuclear reactor concept (“Generation IV systems”) to be issued in the next decades [1]. Thi s technology is intended to be much safer, to have a significantly better yield and to produce less wa stes with a lower nocivity. Liquid sodium is used as the thermal fluid in direct contact with the nuc lear core. Ideally, the heat extracted should be transferred between sodium and water in steam gener ators. BUT when sodium is brought in contact with liquid water, a highly exothermal chemical rea ction ensues which is believed to be explosive in certain situations [2]. Such a contact may happen i n a number of instances (repairs, decommissioning,..) and not only during major accid ents. This is thus a significant safety issue which may significantly handicap the development of this technology. Unfortunately the reasons for which the mixing of s dium with water may lead to an explosion, generating blast waves like an explosive material, do not seem to have been clarified so far not even deeply studied. The primary objective of this PhD w ork is thus to identify the details of the phenomenology, to isolate the leading mechanisms an d to propose a modelling approach.W examine the implications of increased unconventional crude oil production in North America. This production increase has been made possible by the existence of alternative oil-recovery technologies and persistently elevated oil prices that make these technologies commercially viable. We first discuss the factors that have enabled the United States to expand production so rapidly and the glut of oil inventory that has accumulated in the Midwest as a result of logistical challenges and export restrictions. Next, we assess the extent to which the increase in U.S. domestic production will affect global supply conditions and whether the U.S. experience can be repeated in other countries with unconventional oil sources. The evidence suggests that even in the bestcase scenario, the increase in U.S. oil production is unlikely to have a large effect on the global oil market’s demand–supply balance, so its effect on the price of oil is expected to be limited. Furthermore, the United States enjoys unique infrastructural and technological advantages that make it unlikely that rapid increases in unconventional production can be achieved elsewhere.T reactions of sunflower, rapeseed, corn and cameline oils in supercritical (sc) methanol were studied in a flow tubular reactor over a wide range of methanol (ether)/oil ratio, pressure, temperature, and residence time. Special attention was focused on the studies of the product distribution and how it varies upon variation of the above reaction parameters. Reaction conditions to enable high selectivity and conversion of vegetable oils transesterification were determined. Advantages of the reaction in supercritical alcohols and ethers over similar reaction in the presence homogeneous catalysts were demonstrated. It was found that the oil type produced insignificant effect on the product composition (fatty acid esters) and oil conversion value. The reaction conditions provided the selectivity and high conversion of the oils were selected.ID-215 INFLUENCE OF SILICA NANOPARTICLES ON THE TOUGHNESS OF FUSION BONDED EPOXY Patrícia Saliba, Herman Mansur UFMG, Brazil patalvessaliba@gmail.com, hmansur@demet.ufmg.brT Niger Delta is the hub of oil and gas production in Nigeria, and is one of the world’s most severely oil spill impacted areas. The exploration and exploitation of oil interfere with ecological and biodiversity integrity of ecosystems arising from flaring of associated gases, oil spills, use of drilling chemicals, etc. These processes can release heavy metals into coastal waters. Heavy metals are associated with crude oil in variable concentrations depending on the geologic background. Nigeria’s dominant and internationally preferred crude petroleum, Bonny Light, has associated with it metals, the main metals occurring in the order nickel>vanadium>cadmium>copper, lead. Recent pollution studies have revealed elevated levels of Zn, Cu, Pb, Cr, Ni, and V, in Niger Delta water, sediments and food species, thereby, compromising safety of the user population. Oil spills in the Niger Delta impact tremendously on the region’s flora and fauna which serve as the main livelihood support structures of the inhabitants. A recent UNEP study on a section of the Niger Delta revealed widespread oil contamination of land, groundwater and surface waters. Drinking water from wells in one community had benzene, a known carcinogen, 900 times above WHO permissible limit. The UNEP study concludes that restoration of the investigated area would take minimum of 30 years. This paper discusses the incidents of oil pollution, and prospect and challenges of ecosystem restoration of Niger Delta oil degraded environments.

Institutions, the cost of capital, and long-run economic growth: Evidence from the 19th century capital market

Late 19th century investors demanded compensation to invest in countries with poor institutional protection of property rights. Using the monthly stock returns of 1,808 firms located in 43 countries but traded in London between 1866 and 1907, we estimate the country-specific cost of capital. We find a negative relationship between institutions that protect property rights and capital costs. Firms located in countries with weak institutions were charged a premium compared to similarly risky firms located in countries with strong institutions, and this penalty appeared to be costly in terms of future growth. Countries that paid a premium for borrowing in London during this period grew more slowly after 1913 and are poorer today. We thus identify the capital market as a channel through which strong institutions promote growth.