The 2014 oil bust: Causes and consequences

This article suggests that the 2014 oil price collapse was possibly triggered by the falling Euro versus the US Dollar. Specifically, the USD/EUR exchange rate likely adjusted to the sudden economic growth outlook divergence between the US and the EU, as evident by the relative short term interest rate spread measures, and triggered a “strong dollar” trade, which is negative for the crude oil prices. Thus, in our view, the 2014 oil price bust is another episode of oil price inefficiency, similar to the 2008 oil bubble. The key argument presented in this article is that, as long as there are temporary economic growth divergences between the US and the EU, the resulting exchange rate volatility is likely to create the pricing inefficiencies in crude oil, which in fact are mean-reverting, as the economic growth divergences eventually dissipate. •The 2014 oil price collapse was possibly triggered by the falling Euro versus the US Dollar.•The economic divergence between the US and the EU possibly caused the USD/EUR volatility.•The oil fundamentals contributed to the price collapse with the negative sentiment.