Instead attributing much of the historical fluctuations in the price of oil to what he describes as “precautionary demand associated with market concerns about the availability of future oil supplies.” He identifies the latter as any movements in the real price of oil that cannot be explained statistically by his measures of shocks to supply and aggregate demand. Another way one might try to measure the contribution of precautionary demand is by looking at changes in inventories.
...the increase in oil demand is associated with increases in global income levels.
This is an interesting way to think about the oil market. It can encompass the concept of a geopolitical risk premium that is related to holding inventories. Watch to inventories as a means of seeing precautionary demand.
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