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The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis

Author

Listed:
  • Michail Filippidis
  • Renatas Kizys
  • George Filis
  • Christos Floros

Abstract

This study examines the globalisation-regionalisation hypothesis in the WTI/Brent crude oil futures price differential by considering a set of potential crude oil-market specific and oil futures market specific determinants at 1, 3 and 6 months to maturity contracts. We employ monthly data over the period 1993:1-2016:12. Our results show that different determinants explain the spread between the WTI and Brent futures prices at different maturities. In the shorter-run maturities (1-month and 3-month) we find that spreads of the convenience yield, oil production, open interest and trading volume exercise significant effects in the WTI/Brent futures price differential. By contrast, for longer-run maturities (6-month), spreads of the oil production, oil consumption and open interest seem to exercise the most significant effects. We further provide evidence of a regionalised oil futures market over the short-run. The findings of this study provide valuable information to energy investors, traders and hedgers.

Suggested Citation

  • Michail Filippidis & Renatas Kizys & George Filis & Christos Floros, 2019. "The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 10(1), pages 3-38.
    • Handle: RePEc:ids:injbaf:v:10:y:2019:i:1:p:3-38
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    Cited by:

    1. Xi, Yue & Zeng, Qing & Lu, Xinjie & Huynh, Toan L.D., 2022. "Oil and renewable energy stock markets: Unique role of extreme shocks," Energy Economics, Elsevier, vol. 109(C).
    2. Michail Filippidis & George Filis & Georgios Magkonis & Panagiotis Tzouvanas, 2023. "Evaluating robust determinants of the WTI/Brent oil price differential: A dynamic model averaging analysis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(6), pages 807-825, June.

    More about this item

    Keywords

    Brent; convenience yield; globalisation-regionalisation hypothesis; oil futures differential; WTI.;
    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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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