The Effect Of World Economic Cyclical Fluctuation On Oil Price Volatility

The fluctuation of international oil prices have began to rise since 1970s,attracted most attention around the world. The related professionals have done a large amount of research about the reasons of the fluctuation. Recently in 2008,the international oil prices appeared sharp fluctuations due to the context of the subprime crisis.Therefore, whether there is a considerable correlation trend between economic development and oil prices change or not?Firstly the author has explored the conductive mechanism of the economic cycle fluctuation to oil price volatility on the basis of theoretical analysis. According to the historical operation of economic cycles and oil price fluctuations, the analysis defined the relationship among the economic growth, OPEC policy and international oil price . The author analyzed the reasons for economic growth and convergence or departure with the international oil prices and the reasons why OPEC policy of limitation or increasing of the production in order to protect the price does not reach the expected target.At the same time this article has revealed that economic growth convergence or departure with the international oil price movements showing different characteristics at various time periods. This article has done an empirical analysis based on the establishment a model of vector autoregression (VAR) of international oil price ,the rate of world economic growth and the OPEC daily production. The results stated that, in the first stage,the rate of world economic growth has nothing to do with national crude oil prices when we considering "Grange" relationships,typically at the level of 10% international crude oil prices have a one-way causal infuencing relationship to the rate of economic growth.At the second stage , there is a one-way causal relationship between the rate of world economic growth to the international crude oil prices,when the world economic growth rate rise 1% will lead to the international oil prices rise 12.12%.Moreover, the rate of world economic growth has more contributed to price of fluctuations than the OPEC's daily output has done.After comparing the reversed empirical results from the OPEC policy making enormous impact on oil in the first stage,the author believes that the economic cycle possessed a one-way causal relationship to the fluctuations in oil prices, which means economic cycle determined the price. Finally,the paper summarized the researching results,concluded the policy of recommendations based on actual situations.