FACTORS AFFECTING PRICE DISCOVERY IN CRUDE OIL: A LITERATURE REVIEW

Crude being essential product, oil prices act as a prime driver in becoming reason for up and down movement of general price levels. India fulfils its major crude oil requirements by imports. Crude oil price determination mechanism is still not left open fully to the market forces as it is a developing country. Seasoning and maturity of Indian economy needs to understand reasons for price discovery in crude oil, thus, a relationship based understanding of the variables is the need of the hour. Crude oil as energy source is imperative for running economies and sustaining economic growth. The price discoveries of this commodity therefore impact both on exporting and importing countries. The mechanism of price formation is very complex and varies in accordance with supply and demand structure for physical oil whereas paper trading activity including speculation of forwards, futures, options and swaps has also become huge part business directing price of crude oil depending on financial circumstances of the market. The aim of this paper is to reveal, through a literature review, the price discovery of crude oil. The factors revealing changes in crude oil has been subject of analysis. In this paper the literature review of the relevant studies have been enclosed. This review tries to sum up the macro economic factors causing volatility in crude oil prices. The goal of this review is to provide academicians, researchers and investors with an overview of the existing factors that contribute to the formation of crude oil prices and causes of its volatility.