The run-up in oil prices since 2004 coincided with growing investment in commodity markets and increased price comovement among di¤erent commodities. We assess whether speculation in the oil market played a role in driving this salient empirical pattern. We identify oil shocks from a large dataset using a factor-augmented vector autoregressive (FAVAR) model. This method is motivated by the fact that a small scale VAR is not infomationally su¢ cient to identify the shocks. The main results are

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... follows: (i) While global demand shocks account for the largest share of oil price ‡uctuations, speculative shocks are the second most important driver. (ii) The comovement between oil prices and the prices of other commodities is mainly explained by global demand shocks. (iii) The increase in oil prices over the last decade is mainly driven by the strength of global demand. However, speculation played a signi...cant role in the oil price increase between 2004 and 2008 and its subsequent collapse. Our results support the view that the recent oil price increase is mainly driven by the strength of global demand but that the ...nancialization process of commodity markets also played a role. JEL classi...cation: Q41, Q43, D84, C32