Oil price shocks, international risk sharing and external adjustment

Critically, our analysis recognises that oil price changes do not take place in isolation; they are driven by demand and supply shocks, each of which have different effects on the price of oil, the world economy and countries’ external accounts. It is useful to differentiate between three distinct demand and supply shocks in the global market for crude oil:⁵

• Shocks to the production of crude oil (“oil supply shocks”);
• Shocks to global demand for all industrial commodities including crude oil (“aggregate demand shocks”); and
• Oil-market-specific demand shocks such as shocks to the precautionary demand for crude oil driven by shifting expectations about future oil supply shortfalls (“precautionary demand shocks”)...more>>