When the crude oil price rocketed to $147 per barrel in July 2008 and then dropped to as low as $30 per barrel in December 2008, it catalyzed a hot debate about the factors of oil price fluctuations. A large number of papers argue that the main driver of the oil price fluctuations from 2003 to 2008 was due to economic fundamentals in the form of rapidly growing oil demand with stagnant oil supply. However, a different view is that speculation in the oil futures market caused the oil price to drift away from the level justified by the fundamental market forces of demand and supply because a large amount of investment flowed to the oil futures market during this period. This dissertation links the oil financial and spot markets through the oil futures-spot price spread and investigates if the financial activity in the oil futures market plays a critical role in oil spot price fluctuations between 2003 and 2008. In addition, this dissertation also discusses the recent oil price drop since July 2014 and studies whether the main driver of this recent oil price change is similar to that of the oil price change in 2008. ☐ Unlike other related literature that uses standard structural VAR, this dissertation applies a Time Varying Parameter Vector Autoregression (TVP-VAR) model with stochastic volatilities that can capture both time-varying relationships between economic aggregates and time-varying impacts of different oil shocks. This approach disentangles the oil financial speculation shock from economic fundamental shocks. In the meantime, the findings of the TVP-VAR model are compared with those of the Bayesian VAR with stochastic volatilities (BVAR-SV) model, a benchmark model in this dissertation, to see if incorporating time-varying coefficients in the model can give better results. The results of the comparison show that the time variations in coefficients are insignificant and imposing time varying coefficients in the model not only increases the estimation computation work load but also affects the model’s estimation accuracy. Therefore, the conclusion in this dissertation comes from the results of the BVAR-SV model. The results imply that the large proportion of the oil price changes from 2003 to 2008 can be explained by the oil demand shock but this proportion has been decreasing since 2005. In addition, the contribution of the oil financial speculation shock has increased substantially in recent years. In sum, the main driver of oil price change is oil demand from 2003 to 2008, whereas the main driver from 2014 to 2015 is oil financial speculation in the oil futures market.