Publication: Coping with Oil Price Volatility
Loading...
Date
2008-08
ISSN
Published
2008-08
Author(s)
Editor(s)
Abstract
Oil is important in every economy; when its prices are high and volatile, governments feel compelled to intervene. Because there can be large costs associated with such interventions, reserve banks, central planning institutions, and think tanks in industrial countries have been carrying out quantitative analyses of oil price volatility for a number of years. This report focuses on fluctuations around trends in oil prices. It examines measurements of oil price volatility and evaluates several different approaches to coping with oil price volatility: hedging, security stocks, price-smoothing schemes, and reducing dependence on oil including diversification. It does not deal with the impact of oil price volatility on countries' macroeconomic performance or with macroeconomic policy responses; these generally have more to do with coping with higher price levels than with higher volatility per se. The study examines oil price volatility largely from the point of view of consumers and does not cover the management of revenue volatility by large oil exporters.
Link to Data Set
Citation
“Bacon, Robert; Kojima, Masami. 2008. Coping with Oil Price Volatility. Energy Sector Management Assistance Program
(ESMAP) energy security special report;no. 005/08. © http://hdl.handle.net/10986/17539 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Petroleum Markets in Sub-Saharan Africa : Analysis and Assessment of 12 Countries(World Bank, Washington, DC, 2010-03)This regional study takes twelve oil-importing countries in Sub-Saharan Africa and asks the following two questions: does each stage in the supply chain, from import of crude oil or refined products to retail, seem to be efficiently run and are the efficiency gains passed on to end-users? And if not, what are the potential causes and possible means of remedying the problems? The study focuses on Burkina Faso, Cote d'Ivoire, Mali, Niger, and Senegal in West Africa and Botswana, Kenya, Madagascar, Malawi, South Africa, Tanzania, and Uganda in East and Southern Africa, covering a wide range of conditions that affect price levels, such as the market size, geography (whether landlocked or coastal), existence of domestic refineries, degree of sector liberalization including pricing, and level of economic development.Publication Reforming Fuel Pricing in an Age of $100 Oil(World Bank, Washington, DC, 2013-01)Increases in world oil prices since 2004 have challenged consumers and oil-importing countries across the world. Oil prices temporarily fell sharply in 2009, only to triple three years later. The oil import share of gross domestic product rose by nearly half among net oil importers in just two years between 2009 and 2011. Governments that control oil product prices have come under pressure to intervene by keeping domestic prices low and effectively subsidizing consumers. This study focuses on the evolving role of oil in national economies, particularly those of developing countries, and proposes a menu of options for drawing a roadmap for pricing policy reform for oil products. In light of events since 2009, it examines how recent price movements have affected countries' vulnerability to world oil price increases, how governments have adjusted domestic fuel prices in response, the consequences of the policy responses, other coping mechanisms to deal with high oil prices and price volatility, the roadblocks to reforming pricing policy, and how to deal with them. This report suggests a menu of options for moving away from sectoral subsidies to market-based pricing, accompanied by an integrated social protection program and complementary policies to reduce consumption through efficiency improvement and fuel diversification. Sending the right price signals and reducing consumption can bring many benefits, ranging from greater supply security to less congestion and pollution from road transport. This report can help policy makers conduct more informed national dialogues on managing fuel pricing and the political economy around it.Publication Placing the 2006/08 Commodity Price Boom into Perspective(2010-07-01)The 2006-08 commodity price boom was one of the longest and broadest of the post-World War II period. Apart from strong and sustained economic growth, the recent boom was fueled by numerous factors, including low past investment in extractive commodities, weak dollar, fiscal expansion, and lax monetary policy in many countries, and investment fund activity. At the same time, the combination of adverse weather conditions, the diversion of some food commodities to the production of biofuels, and government policies (including export bans and prohibitive taxes) brought global stocks of many food commodities down to levels not seen since the early 1970s. This in turn accelerated the price increases that eventually led to the 2008 rally. The weakening and/or reversal of these factors coupled with the financial crisis that erupted in September 2008 and the subsequent global economic downturn, induced sharp price declines across most commodity sectors. Yet, the main price indices are still twice as high compared to their 2000 real levels, begging once more the question about the real factors affecting them. This paper concludes that a stronger link between energy and non-energy commodity prices is likely to be the dominant influence on developments in commodity, and especially food, markets. Demand by emerging economies is unlikely to put additional pressure on the prices of food commodities. The paper also argues that the effect of biofuels on food prices has not been as large as originally thought, but that the use of commodities by financial investors (the so-called "financialization of commodities") may have been partly responsible for the 2007/08 spike. Finally, econometric analysis of the long-term evolution of commodity prices supports the thesis that price variability overwhelms price trends.Publication Drawing a Roadmap for Oil Pricing Reform(World Bank, Washington, DC, 2013-05)In 2011, the median oil imports rose to 5 percent of gross domestic product for net importers. In the past several years, many governments have not passed through the world oil price increases to consumers fully. As a sign of divergent pricing policies, the retail prices of gasoline, diesel, and cooking gas in January 2013 varied by a factor of 190, 250, and 70, respectively, across developing countries. Policies to keep oil product prices low to benefit the economy and protect the poor have had a number of unintended negative consequences, including flourishing corruption in the oil sector and entrenchment of monopoly operators or inefficient firms through which subsidies are channeled, stifling competition and raising costs. The path to market-based pricing depends on the starting conditions: the gap between current and market-based price levels, the level of public awareness about the extent of departure from market prices, the degree of market concentration and competition in downstream oil, the subsidy delivery mechanism where subsidies are provided, the robustness of social service delivery, and the perceived credibility of the government. The evidence presented in this paper suggests that pricing reform often does not have a clear end and should instead be viewed as a continuous process of adjustment and search for mechanisms that take into account the country's institutions and political system, and the oil sector's market structure, infrastructure, and history.Publication Measures to Reduce the Economic and Social Impact of High Fuel Prices(Washington, DC, 2011)High volatility in the world prices of petroleum has been a characteristic feature of the global economy in the last decade. World petroleum prices increased four-fold between 2004 and 2008 and, and following a drop in prices in the second half of 2008, petroleum prices have been rising again, and they are several times higher than they were two decades ago. Since high and volatility of prices is likely to be a permanent feature of the global economy for the foreseeable future, they merit a reconsideration of the national transport and taxation policies that were put in place when fuel prices were not such a significant component of trade-related transactions costs in Sub-Saharan Africa (SSA) countries. Transport practices that were based on the assumption of low price of fuel are not sustainable, and policies neglect fuel efficiency considerations through lowering the fuel consumption of vehicles measures are no longer sustainable. Efficient and low transport cost is essential to achieve regional economic integration and strengthen Africa's competitiveness in external markets. Higher diesel prices also impact on the prices of all other goods which use diesel as an intermediate input. The most significant among them with implications for the poor in low-income developing countries is food, on which the poor spend a disproportionately high share of their total household expenditures. This report is in three parts in the first part, transport fuel prices in the countries of SSA are compared with those of other regions of the world. The comparison is not only in terms of the actual retail prices but also, but taking account of per capita incomes and truck revenues, also in terms of affordability. This Part also provides evidence of the make-up of transport fuel prices in SSA countries, as a first step in assessing how they can be dealt with. The second part provides new evidence of the impact of these high fuel prices on the export competiveness of a sample of six SSA countries. It also provides a shorter description of the results of a study of the impact of fuel prices on logistics costs in Central America, since so far there have not been any studies of the impact of high transport fuel prices on logistics and food costs in SSA countries. The third part deals with the ways in which the impact of high transport fuel prices can be addressed. Two main areas of action are described, those that would reduce the retail price of transport fuel and those that would increase fuel efficiency, so they impact of high prices would be reduced. This section focuses on diesel fuel, as this is by far the most used by the trucks that transport export products and are involved in domestic logistics. This section concludes with some ideas on what could be done next to make progress on implementing the most promising ideas for reducing the impact of high transport fuel prices.
Users also downloaded
Showing related downloaded files
Publication Remarks at the United Nations Biodiversity Conference(World Bank, Washington, DC, 2021-10-12)World Bank Group President David Malpass discussed biodiversity and climate change being closely interlinked, with terrestrial and marine ecosystems serving as critically important carbon sinks. At the same time climate change acts as a direct driver of biodiversity and ecosystem services loss. The World Bank has financed biodiversity conservation around the world, including over 116 million hectares of Marine and Coastal Protected Areas, 10 million hectares of Terrestrial Protected Areas, and over 300 protected habitats, biological buffer zones and reserves. The COVID pandemic, biodiversity loss, climate change are all reminders of how connected we are. The recovery from this pandemic is an opportunity to put in place more effective policies, institutions, and resources to address biodiversity loss.Publication Media and Messages for Nutrition and Health(World Bank, Washington, DC, 2020-06)The Lao People’s Democratic Republic (Lao PDR) has experienced rapid and significant economic growth over the past decade. However, poor nutritional outcomes remain a concern. Rates of childhood undernutrition are particularly high in remote, rural, and upland areas. Media have the potential to play an important role in shaping health and nutrition–related behaviors and practices as well as in promoting sociocultural and economic development that might contribute to improved nutritional outcomes. This report presents the results of a media audit (MA) that was conducted to inform the development and production of mass media advocacy and communication strategies and materials with a focus on maternal and child health and nutrition that would reach the most people from the poorest communities in northern Lao PDR. Making more people aware of useful information, essential services and products and influencing them to use these effectively is the ultimate goal of mass media campaigns, and the MA measures the potential effectiveness of media efforts to reach this goal. The effectiveness of communication channels to deliver health and nutrition messages to target beneficiaries to ensure maximum reach and uptake can be viewed in terms of preferences, satisfaction, and trust. Overall, the four most accessed media channels for receiving information among communities in the study areas were village announcements, mobile phones, television, and out-of-home (OOH) media. Of the accessed media channels, the top three most preferred channels were village announcements (40 percent), television (26 percent), and mobile phones (19 percent). In terms of trust, village announcements were the most trusted source of information (64 percent), followed by mobile phones (14 percent) and television (11 percent). Hence of all the media channels, village announcements are the most preferred, have the most satisfied users, and are the most trusted source of information in study communities from four provinces in Lao PDR with some of the highest burden of childhood undernutrition.Publication Early Child Development, From Measurement to Action : A priority for Growth and Equity(Washington, DC: World Bank, 2007)The World Bank recently hosted a symposium on the priority of early child development (ECD) for economic growth and equity. The participants urged application of population-based tools and measures to assess the outcomes of children's early years and children's readiness for school. This study is derived from the symposium and is a valuable resource for policy makers, economists, donors, and investors, as well as researchers and practitioners in early child development. It summarizes the current neuroscience on early child development and major longitudinal studies, the rationale and urgency for greater investment, and countries' innovative funding strategies. The report consists of 15 chapters authored by ECD experts and leaders in the field. The chapters are grouped into five main parts relating to the: business imperative and societal benefits of ECD investments; lessons from evaluation of longitudinal ECD interventions; countries' experiences in monitoring ECD interventions; innovative approaches to countries' financing of ECD initiatives; and next steps on the ECD agenda for the next 5 years. A theme highlighted at the symposium and enlarged upon here is the urgent need for evidence- and population-based instruments and measures to monitor, evaluate, and compare ECD interventions over time and across settings.Publication Economic Recovery(World Bank, Washington, DC, 2021-04-06)World Bank Group President David Malpass spoke about the world facing major challenges, including COVID, climate change, rising poverty and inequality and growing fragility and violence in many countries. He highlighted vaccines, working closely with Gavi, WHO, and UNICEF, the World Bank has conducted over one hundred capacity assessments, many even more before vaccines were available. The World Bank Group worked to achieve a debt service suspension initiative and increased transparency in debt contracts at developing countries. The World Bank Group is finalizing a new climate change action plan, which includes a big step up in financing, building on their record climate financing over the past two years. He noted big challenges to bring all together to achieve GRID: green, resilient, and inclusive development. Janet Yellen, U.S. Secretary of the Treasury, mentioned focusing on vulnerable people during the pandemic. Kristalina Georgieva, Managing Director of the International Monetary Fund, focused on giving everyone a fair shot during a sustainable recovery. All three commented on the importance of tackling climate change.Publication Climate Change and Migration : Evidence from the Middle East and North Africa(Washington, DC: World Bank, 2014-07-15)Climate change is a major source of concern in the Middle East and North Africa (MENA) region, and migration is often understood as one of several strategies used by households to respond to changes in climate and environmental conditions, including extreme weather events. This study focuses on the link between climate change and migration. Most micro-level studies measure climate change either by the incidences of extreme weather events or by variation in temperature or rainfall. A few studies have found that formal and informal institutions as well as policies also affect migration. Institutions that make government more responsive to households (for example through public spending) discourage both international and domestic migration in the aftermath of extreme weather events. Migration is often an option of last resort after vulnerable rural populations attempting to cope with new and challenging circumstances have exhausted other options such as eating less, selling assets, or removing children from school. This study is based in large part on new data collected in 2011 in Algeria, Egypt, Morocco, Syria, and the Republic of Yemen. The surveys were administered by in-country partners to a randomly selected set of 800 households per country. It is also important to emphasize that neither the household survey results nor the findings from the qualitative focus groups are meant to be representative of the five countries in which the work was carried, since only a few areas were surveyed in each country. This report is organized as follows: section one gives synthesis. Section two discusses household perceptions about climate change and extreme weather events. Section three focuses on migration as a coping mechanisms and income diversification strategy. Section four examines other coping and adaptation strategies. Section five discusses perceptions about government and community programs.