Ideas with Impact
UNB Faculty of Management

When you fill up your gas tank or buy groceries, the price you pay often depends on global oil prices. We usually assume those prices reflect real-world factors for things like supply disruptions, wars, or economic booms. But what if that’s only part of the story?

In his recent research paper, “Does Excess Futures Market Demand Affect the Spot Price of Oil?” forthcoming in Energy Economics, Dr. Joseph DeCoste examines whether demand in financial markets, particularly for oil futures contracts, can influence the real-world, physical price of oil, even when that demand isn’t tied to economic fundamentals. “A key example is professional investors who buy oil futures to diversify their portfolios,” he says. “They’re not betting on supply or demand shifts; they’re just trying to reduce risk.”

But could that kind of trading still push up oil prices for everyone?

“It matters,” he says, “because oil is baked into nearly every corner of the economy. If the spot price, the one used for actual physical delivery, gets pulled away from real-world supply and demand, it can distort companies’ decisions and drive up costs for households on everything from fuel to food.”

To investigate this, Dr. DeCoste used a statistical model designed to sort out what's really behind oil price moves. Is it a genuine change in fundamentals, like a production cut or surge in demand? Or is it a wave of financial demand that has little to do with what’s happening in the real economy?

“Past studies looked for clues in inventory levels, but that doesn’t always tell the full story, especially when information is incomplete. My model picks up on price signals flowing from futures markets to spot prices, even when inventory data doesn’t budge.”

“What I found is striking. More than half of short-term movements in oil prices can be attributed to excess demand in futures markets. This became especially pronounced after 2003, when professional investors began pouring into commodity futures as part of a broader push to diversify portfolios. Economists refer to this shift as the financialization of commodities.”

So, what does this all mean? DeCoste’s study suggests that financial markets don’t just reflect the economy, they help shape it. “If futures-based trading can raise spot prices, that has very real consequences for inflation, energy access, and how we think about financial activity’s role in the broader economy. It also helps explain some of the dramatic price swings we’ve seen, like during the 2008 financial crisis or the 2014 oil crash.”

Dr. DeCoste is the Director of UNB’s Centre for Financial Studies. In addition to the Student Investment Fund course, he teaches courses in financial data analysis, international financial markets and financial institutions and markets.His research interests include the effects that the financialization and indexing of assets has on financial markets and the real economy.

For students in Dr. DeCoste’s finance courses, this research isn’t just theory, it’s a window into how financial markets shape the real economy in ways that affect everyday life. Whether it’s understanding the ripple effects of futures trading on inflation or exploring how financial data can reveal hidden market forces, students gain firsthand insight into the complex relationship between trading floors and the world around them.

By connecting cutting-edge research with real-world examples, Dr. DeCoste equips future financial professionals with the tools to think critically about markets, policy, and the broader economic landscape. It’s this blend of academic rigor and practical relevance that makes his teaching and his research so impactful.

Photo: In a recent study, finance professor Dr. Joseph DeCoste’s examines whether demand in financial markets, particularly for oil futures contracts, can influence the real-world, physical price of oil, even when that demand isn’t tied to economic fundamentals.

Learn more about Dr. Joseph DeCoste and UNB’s Faculty of Management.

Media contact

Liz Lemon-Mitchell
Lizabeth.Lemonmitchell@unb.ca