Capabilities of price shocks modeling in the world oil market in modern conditions

World economy

The world oil market prices fluctuate due to the low elasticity of demand and supply. External causes such as embargoes or local conflicts used to lead to price shocks. In the course of globalization processes, access of financial capital to commodity exchanges has distorted the traditional price-setting mechanism, based on supply and demand balance and supplemented it with competition between commodity and financial derivatives in terms of their profitability. As a result, price volatility has increased and a new kind of price shocks, based on financial reasons, has appeared. Modern price shocks have their own development patterns, which can be explained by spontaneously coordinated behavior of stock agents at the beginning of shock trend forming. The issue of current importance is inability of the existing forecasting methods in the condition of price shocks, which makes the researchers look for new approaches. The authors present an approach on the basis of the developed phenomenological model, based on the analysis of the oil shock of 2008–2009. It has been shown that the dispersion of oil prices during the shock can be approximated with high reliability by a Gaussian function and the derivative of this function is proportional to the price shock trend itself. Thus, the dynamics of modern price shocks has a statistically conditioned nature, which is connected to the activities of financial agents. The similarity of oil piece shocks in 2008–2009 and 2014–2015 can be explained by the interconnection of oil price dispersion and the shock trend with the financial market. Superposition of the phenomenological oil shock model on the price forecast for 2014–2015 showed high correlation between prognostic and actual values of oil prices. Thus, the use of the phenomenological oil shock model as a possible scenario can improve the accuracy of forecasted oil prices. This model can be applied in budget formulation and development of long-term socio-economic strategies of the country. Future research of the authors involves further elaboration of the phenomenological price shock model, its theoretical justification and development of a leading indicator system which helps to predict the time of the price shocks appearance.