Do Crises Tear the Fabric of Oil Trade?

In 1990, Iraq invaded Kuwait, touching off an economic, financial, diplomatic, and military crisis associated with a tremendous spike in oil prices and recession in OECD and oil-importing developing countries. But was the Gulf Crisis a disruption? Did it affect the fabric of oil trade? To examine this question, this paper examines the changing role of international trade intermediaries (ITIs, often referred to as “trading companies”) in the oil market. ITIs connect buyers and sellers, serving as the glue that holds many commodity markets together. Oil trading companies have attracted harsh scrutiny form policymakers as a result of allegations regarding their role in the United Nations’ Iraqi Oil-for-Food Program, but minimal scholarly attention. The paper takes advantage of a unique microdatabase on the Brent market. Produced in the U.K. North Sea, Brent Blend is by far the most widely traded crude oil in the international market. Participants in the Brent market are diverse, with the largest traders falling into two categories. The first comprises “industrial MNEs”—companies active in the business of producing or refining crude oil. The second category comprises financial houses and trading companies. This diversity provides an opportunity to test hypotheses regarding behavioral differences across types of companies and geographic origin, before, during, and after the crisis.oil, trading companies, crisis, Brent, North Sea

Do Birds of a Feather Flock Together? Speculator Herding in the World Oil Market

This paper looks at speculative behavior in the international oil market. Much of the blame for oil-market turbulence has been placed on speculators, particularly hedge funds. Speculative capital has been characterized as “hot money,” with capital flows driven by “herding,” “flocking,” and “contagion.” Policies to deal with volatility by weakening, or even disabling speculation, have been based largely on anecdote, convenience (speculators have long served as scapegoats for various problems), and ideology, rather than careful analysis. Part of the problem arises from the secrecy with which speculators operate. Because speculative trading cannot easily be observed, it is difficult to assess speculators’ contribution, if any, to volatility. The paper utilizes a large, detailed database on individual trader positions in crude-oil and heating-oil futures markets. The paper is exploratory, with focus on measuring and assessing the tendency of speculators to herd (trade in the same direction as a group) and flock (trade in the same direction by subgroups of speculators).oil, speculation, volatility, herding, derivatives, futures

Sheep in Wolves' Clothing?

The 1990s have been a decade of upheaval in international financial markets. Much of the responsibility for financial instability has been placed on speculators, particularly hedge funds. Speculative capital has been characterized as "hot money", with capital flows driven by "herding" and "contagion" among players in foreign-exchange, stock, bond, and commodity markets. Policies to deal with financial instability by weakening, or even disabling speculation, have been based largely on anecdote, convenience (speculators have long served as scapegoats for various problems), and ideology, rather than careful analysis. Part of the problem arises from the secrecy with which speculators operate. Since speculative trading cannot easily be observed, it is difficult to assess speculators' contribution, if any, to financial volatility. This paper looks at speculative behavior in one of the largest, and most volatile, international financial markets, petroleum derivatives. It utilizes a large, detailed database on individual trader positions in crude-oil and heating-oil futures markets. The paper is exploratory, focusing on measuring and assessing the tendency of speculators to herd. Two theories behind rational herding behavior are examined - the asymmetric information view (poorly-informed traders make decisions based on observing well-informed traders, rather than market fundamentals) and the monitoring/incentive view (institutiona investors make decisions knowing that their incentives are based on performance relative to a benchmark such as mean returns for a group). These theories generate different predictions regarding the types of speculators most likely to herd. The evidence does not support the view that herding among speculators as a group is widespread in this market. In contrast, evidence in favor of a moderate degree of herding among one group of speculators, commodity-fund managers. The evidence is supportive of the monitoring/incentive theory, but not the asymmetric-information theory.

Multinational Corporations, Transfer Prices, and Taxes: Evidence from the U.S. Petroleum Industry

Economic research on transfer-pricing behavior by multinational corporadons has emphasized theoretical modeling and institutional description. This paper presents the fiit systematic empirical analysis of transfer prices, using data from the petroleum industry. On the basis of oil imported into the United States over the period 1973 - 1984, we test two propositions: i) Are prices set by integrated companies for their internal transfers different from those prevailing in arm 's-length (i.e., inter-company) trade, when other variables, such as oil quality, are controlled for? ii) Do average effective corporate income tar rates explain observed patterns of transfer pricing? Regression analysis leads to the following conclusions: i) Transfer and arm's-length prices differ significantly for oil origznating in some countries but not all. When multiplied by the relevant import volumes, these differences are relatively smalL The revenue transferred through deviations from arm's-length prices represents two percent or less of the value of the crude oil imported by multinational companies each year. ii) The observed differences between arm's-length and transfer prices are not easily explained by average effective tax rates in exporting countries. Our results provide little support for the claim that multinational petroleum companies set their transfer prices to evade taxes. We offer several hypotheses to explain our findings.

Nominal Contracting and Price Flexibility in Product Markets

The search for microeconomic foundations of non-Walrasian outcomes in labor and product markets has spawned many studies of contracting. This paper emphasizes the role of contracts for market equilibrium -- for many raw materials and basic industrial commodities -- in which long-term contractual arrangements and spot markets coexist. Our principal goals are two -- (i) to explain the existence of contracts and the equilibrium fraction of trades carried out under contract, and (ii) to consider the impact of demand and supply shocks on spot prices when market trades also take place through long-term contracts. We find that the relative importance of contracting depends on, inter alia, the variance of the spot price and the sources of underlying fluctuations. Consistent with the findings of previous macroeconomic studies, we find that contracting and price rigidity are more likely the more important demand shocks are relative to supply shocks. We adapt our static model of contract price and quantity determination to discuss the adjustment of contract prices. Finally, we discuss three important applications of our multiple-price modeling structure -- to (i) analyses of the effects of changes in vertical market structure on market equilibrium in commodity markets (with specific reference to petroleum and copper), (ii) models of the optimal degree of contract indexation,and (iii) aggregate studies of "sticky prices" in macroeconomics.

The United Nations and War in the Twentieth and Twenty-First Centuries

The United Nations was created in 1945 to prevent another world war. It was designed, as the Preamble to the Charter states, to eliminate the scourge of war. The failure to agree on a permanent UN international army meant that the UN had to improvise in dealing with wars. Peacekeeping, which is not mentioned anywhere in the UN Charter, had to be invented. This study investigates how peacekeeping has evolved through four “generations,” culminating in Unsanctioned multinational forces consisting of “coalitions of the willing.” The study also stresses how one of the greatest peacekeeping failures of the UN in the twentieth century was its inability to prevent genocide from taking place in Rwanda and Bosnia. After an analysis of the UN’s role in the war against terror, the war in Afghanistan, and the war in Iraq, the study concludes with a discussion of various proposals for reform designed to improve the capacity of the UN to engage in more effective peacekeeping in the twenty-first century

Water. World Water, A Crisis of Global Governance?

In a global world, how can water, a necessary and increasingly scarce resource, be managed? We understand that water is a basic need. Do we also share the belief that water is a basic right? Does the international community share beliefs about water that may be the foundation of an international regime or system of global governance for the equitable implementation of global water policy? And finally, what international body or bodies might handle the disputes that arise as our population and need for water increase? The author tackles these questions and looks at models to guide us

The Unfinished Global Revolution: the Pursuit of a New International Politics - Mark Malloch-Brown

Several themes run throughout this book, in which Mark Malloch-Brown melds his personal experience as a British civil servant with his career as an international civil servant, working at various times at the World Bank, as the head of the United Nations Development Program, and UN Secretary-General’s Kofi Annan’s assistant. The central theme of the book revolves around the need for an effective system of global governance to cope with the major challenges which the international community faces in the age of globalization in the 21st century. Some of the problems involve the darker side of globalization, such as terrorism which was symbolized by the attack on the World Trade Center on 9/11 and witnessed by Malloch-Brown while he was working in New York City at the UN Headquarters. Other critical problems are the growth in the world’s population, which will result in overcrowded cities especially in the developing world; limits to the amount of natural resources (especially energy); continuing degradation of the environment (pollution of the environment as a result of economic growth); and the growth in trade which will benefit some of the developing countries, such as China, India and Brazil, more than the developed countries, although extreme economic inequality still exist in countries like India that are undergoing significant economic growth

Funding Resilient Infrastructure in New Jersey: Attitudes Following a Natural Disaster

Recent major natural disasters in New Jersey have demonstrated the need to increase the resilience of transportation infrastructure. This research examines public attitudes toward revenue sources that can be dedicated to protecting vulnerable areas, most notably the transportation linkages on which the state depends. A statewide survey was conducted to gather data approximately four months following Superstorm Sandy, the costliest natural disaster in the state’s history. The authors’ objective was to sample public attitudes while the impacts of the disaster were still fresh. They found little support for temporary tax increases to improve resiliency, with the most positive support for taxing visitors (i.e., a hotel and recreational tax) and for a 30-year bond measure (i.e., taxing the future). This observation seemingly contradicts broad support for investing in new infrastructure, as well as maintaining and protecting existing infrastructure. Multivariate analysis to understand the underlying attitudes toward raising revenue found that more left-leaning or communitarian attitudes are associated with more support for gasoline, income, or sales taxes devoted to mitigating vulnerability. Those who supported investment in transit and protecting infrastructure also were more likely to support these taxes. There was no parallel finding of factors associated with taxing visitors or issuing bonds