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Decoupling and recoupling in the crude oil price benchmarks: An investigation of similarity patterns

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  • Mastroeni, Loretta
  • Mazzoccoli, Alessandro
  • Quaresima, Greta
  • Vellucci, Pierluigi

Abstract

The aim of this paper is to investigate the decoupling and recoupling of WTI and Brent prices also with respect to the debate on the regionalisation-globalisation of the two oil markets.To this purpose, we employ the Dynamic Time Warping (DTW) algorithm to identify decoupling events between the two crude oil price series. DTW has been employed for classification and clustering aims in many fields, but in this paper we make a slightly different application of DTW with respect to those provided by the literature, demonstrating how DTW can be employed also to investigate the decoupling between the two oil benchmarks. Our analysis reveals that the two oil benchmarks decouple and recouple according to WTI local market conditions. Therefore, we found evidence that WTI-Brent market is not fully integrated at all times. We also propose two DTW-based indexes: Relative-Alignment Index (RAI) and Warping Index. The first confirms that the greatest decoupling between WTI and Brent occurs because of WTI local market conditions and is useful in highlighting the main decoupling between our crude oil series over time, while the second provides information on the time window of crude oil price decoupling. Lastly, we provide some policy implications based on our results.

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  • Mastroeni, Loretta & Mazzoccoli, Alessandro & Quaresima, Greta & Vellucci, Pierluigi, 2021. "Decoupling and recoupling in the crude oil price benchmarks: An investigation of similarity patterns," Energy Economics, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:eneeco:v:94:y:2021:i:c:s0140988320303765
    DOI: 10.1016/j.eneco.2020.105036
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    Cited by:

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    4. Chatziantoniou, Ioannis & Gabauer, David & Gupta, Rangan, 2023. "Integration and risk transmission in the market for crude oil: New evidence from a time-varying parameter frequency connectedness approach," Resources Policy, Elsevier, vol. 84(C).
    5. Gao, Xin & Li, Bingxin & Liu, Rui, 2023. "The relative pricing of WTI and Brent crude oil futures: Expectations or risk premia?," Journal of Commodity Markets, Elsevier, vol. 30(C).
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    7. Wang, Tiantian & Qu, Wan & Zhang, Dayong & Ji, Qiang & Wu, Fei, 2022. "Time-varying determinants of China's liquefied natural gas import price: A dynamic model averaging approach," Energy, Elsevier, vol. 259(C).
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