Crude Volatility: The History and the Future of Boom-Bust Oil Prices.

• Author: Fitzgerald, Timothy
• Position: Book review

Crude Volatility: The History and the Future of Boom-Bust Oil Prices, ROBERT MCNALLY. (Columbia University Press, New York, 2017), 336 pages, ISBN 978-0231178143, Hardback.

Oil has an uncanny ability to captivate people. For some, perhaps it is the promise of money that is compelling, while others are drawn by the rich geopolitical tapestry; a handful (who are perhaps avid readers of The Energy Journal) are mesmerized by the mathematical elegance of intertemporal optimization. But for Robert McNally, the appeal is the factors affecting the price of crude oil, which may be the single most consequential commodity price in the world. The ability to control, and particularly modulate, oil prices has been an elusive goal of producers, consumers, and governments for well over a century. The whipsaw boom-bust cycles of oil markets have made and dashed fortunes while vexing purchasers and policymakers. Yet for three periods in history, price stability prevailed. In Crude Volatility, McNally explores the three different mechanisms that provided stability and considers the implications of volatile oil prices. The message of the generalist book is that the most recent of these periods is over, and the world now faces crude volatility, or volatile oil prices going forward. Along the way in delivering this message, he paints a compelling picture of the colorful history of the global oil industry.

History of the oil business is engaging and popular, but for many economists it might seem like a frivolous indulgence. Why should an energy economist care about this book? By focusing on prices and price volatility in particular, McNally has written a detailed history of an issue of interest and pertinence to nearly every energy economist (and many macroeconomists). It is well-researched and documented with a 20-page bibliography befitting an academic volume. The focus on volatility in oil prices offers a host of hypotheses to be tested more rigorously. And the book highlights the importance of oil prices for policy setting, reflecting McNally's own experience in that realm.

Further establishing his credibility with economists, McNally introduces two unique datasets that he has assembled from a varierty of sources and uses to bolster his arguments about price volatility. One is a monthly time series of oil prices stretching back to 1859, which allows him to calculate intrayear variability as a primary measure of price volatility. The statistical differences...