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The Bias in the Long Run Relation between the Prices of BRENT and West Texas Intermediate Crude Oils

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  • Samih Antoine Azar

    (Haigazian University, Lebanon,)

  • Angelic Salha

    (Haigazian University, Lebanon.)

Abstract

This paper is about the magnitude of association between two crude oils, the UK BRENT and the Texan West Texas intermediate. Practice presumes and theory predicts a unitary and a proportionate association, especially for the log-log specifications. A battery of cointegration tests are conducted to test whether the slopes, or the cointegrating vectors, are statistically significant and are statistically higher than +1. All cointegrating vectors are found to be statistically higher than +1 whatever the sample frequency selected, monthly, weekly, or daily, and whatever the functional forms or the econometric procedures adopted. Subsidiary results are that the samples chosen do not contain calendar structural breaks, and that regionalization of the oil market is strongly denied. These results reject the underlying intuition and theory, and set the stage for a possible financial anomaly.

Suggested Citation

  • Samih Antoine Azar & Angelic Salha, 2017. "The Bias in the Long Run Relation between the Prices of BRENT and West Texas Intermediate Crude Oils," International Journal of Energy Economics and Policy, Econjournals, vol. 7(1), pages 44-54.
    • Handle: RePEc:eco:journ2:2017-01-05
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    References listed on IDEAS

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    Cited by:

    1. Bravo Caro, José Manuel & Golpe, Antonio A. & Iglesias, Jesús & Vides, José Carlos, 2020. "A new way of measuring the WTI – Brent spread. Globalization, shock persistence and common trends," Energy Economics, Elsevier, vol. 85(C).

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    More about this item

    Keywords

    BRENT and West Texas Intermediate Crude Oil Spot Prices; Cointegration; Error-correction Models; Generalized Auto-regressive Conditional Heteroscedasticity Methods; Bias in the Association; Three Data Frequencies; Oil Market Integration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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