Price Dynamics in Global Crude Oil Markets

Abstract

We use high‐frequency data to better characterize price dynamics in global crude oil markets. Initially, we provide much‐needed quantitative evidence on interactions between physical and financial layers of the Brent market, highlighting the ICE Brent futures contract as the overwhelming source of price discovery in this market. Thereafter, we quantify the impact of oil supply constraints at Cushing, showing they are a significant determinant of ever decreasing levels of cointegration between Brent and WTI markets. Finally, against this backdrop we show that, on days where ICE Brent and CME WTI futures remain cointegrated, the latter still dominate price discovery. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:148–162, 2015

Return and volatility transmission between China's and international crude oil futures markets: A first look

“…To our best knowledge, this is the first comprehensive study to explore the long‐run price relationship and return and volatility dynamic relationships between the newly launched Chinese crude oil futures and international major crude oil futures markets WTI and Brent. As previous studies (e.g., Lin & Tamvakis, 2001; Liu, Schultz, & Swieringa, 2015) on international linkages of crude oil futures markets primarily focused on the dynamics between WTI and Brent oil futures markets, this study will offer new insights into international crude oil futures market relationships by accounting for both China's and Oman's oil futures markets, which are different from WTI and Brent in terms of the quality of crude oil as the underlying asset.…”

“…When the null hypothesis first fails to be rejected in the sequence, testing is stopped, and the associated null hypothesis is accepted. Extending previous studies (e.g., Liu et al, 2015), the test statistics summarized in Table 2 indicate the existence of one cointegrating vector among WTI, Brent, and INE oil futures prices, among WTI, Brent, and Oman futures prices, as well as among Brent, INE, and Oman futures prices. The unreported result also shows that none of these markets are excluded in each of the cointegration vectors identified above, confirming that a long run relationship indeed connects all oil futures markets under consideration to some extent.…”

“…During the INE overnight trading period, the correlation between WTI and Brent is more volatile, ranging from 21.7% to 97.5%, and yet, it still has the same mean of 85.0% as in the full sample. Obviously, extending research by Liu et al (2015), these two major international crude oil futures markets are, in general, highly integrated with each other, with occasional dramatic changes in the correlation even during the 3‐month sample period.…”

Is there a structural change in the persistence of WTI–Brent oil price spreads in the post-2010 period?

“…Hence, Cushing is key to the issue. An empirical study by Liu et al (2015) found that the oil supply constraints at Cushing significantly affect the decreasing levels of cointegration between WTI and Brent. They also found that WTI dominates the price discovery process when WTI and Brent are cointegrated.…”

The globalisation‐regionalisation debate in international crude oil markets: old wine in new bottles

“…The empirical study of Liu et al . () observed the supply constraints along with the limited storage capacity at Cushing to decrease the cointegration between these two benchmark crudes. In their study, Chen et al .…”