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Price Dynamics in Global Crude Oil Markets

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  • Wai‐Man Liu
  • Emma Schultz
  • John Swieringa

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

Suggested Citation

  • Wai‐Man Liu & Emma Schultz & John Swieringa, 2015. "Price Dynamics in Global Crude Oil Markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(2), pages 148-162, February.
    • Handle: RePEc:wly:jfutmk:v:35:y:2015:i:2:p:148-162
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    Cited by:

    1. Chen, Wei & Huang, Zhuo & Yi, Yanping, 2015. "Is there a structural change in the persistence of WTI–Brent oil price spreads in the post-2010 period?," Economic Modelling, Elsevier, vol. 50(C), pages 64-71.
    2. Dragomirescu-Gaina, Catalin & Philippas, Dionisis & Goutte, Stéphane, 2023. "How to ‘Trump’ the energy market: Evidence from the WTI-Brent spread," Energy Policy, Elsevier, vol. 179(C).
    3. Ye, Shiyu & Karali, Berna, 2016. "Estimating relative price impact: The case of Brent and WTI," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235728, Agricultural and Applied Economics Association.
    4. Niyati Bhanja & Arif Billah Dar & Aviral Kumar Tiwari, 2018. "Do Global Crude Oil Markets Behave as One Great Pool? A Cyclical Analysis," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 14(2), pages 219-241, November.
    5. 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).
    6. Stanislav Anatolyev & Sergei Seleznev & Veronika Selezneva, 2018. "Formation of Market Beliefs in the Oil Market," CERGE-EI Working Papers wp619, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    7. Shao, Mingao & Hua, Yongjun, 2022. "Price discovery efficiency of China's crude oil futures: Evidence from the Shanghai crude oil futures market," Energy Economics, Elsevier, vol. 112(C).
    8. Emma Schultz & John Swieringa, 2018. "Information linkages between emission allowance and energy markets," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(3), pages 921-935, September.
    9. Sun, Chuanwang & Zhan, Yanhong & Peng, Yiqi & Cai, Weiyi, 2022. "Crude oil price and exchange rate: Evidence from the period before and after the launch of China's crude oil futures," Energy Economics, Elsevier, vol. 105(C).
    10. Kuruppuarachchi, Duminda & Lin, Hai & Premachandra, I.M., 2019. "Testing commodity futures market efficiency under time-varying risk premiums and heteroscedastic prices," Economic Modelling, Elsevier, vol. 77(C), pages 92-112.
    11. Niyati Bhanja & Samia Nasreen & Arif Billah Dar & Aviral Kumar Tiwari, 2022. "Connectedness in International Crude Oil Markets," Computational Economics, Springer;Society for Computational Economics, vol. 59(1), pages 227-262, January.
    12. Olivier Rousse & Benoît Sévi, 2017. "Informed Trading in Oil-Futures Market," Working Papers hal-01460186, HAL.
    13. Olivier Rousse & Benoît Sévi, 2016. "Informed Trading in Oil-Futures Market," Working Papers hal-01410093, HAL.
    14. You‐How Go & Jia‐Jun Teo & Kam Fong Chan, 2023. "The effectiveness of crude oil futures hedging during infectious disease outbreaks in the 21st century," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(11), pages 1559-1575, November.
    15. 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).
    16. Kuruppuarachchi, Duminda & Premachandra, I.M., 2016. "Information spillover dynamics of the energy futures market sector: A novel common factor approach," Energy Economics, Elsevier, vol. 57(C), pages 277-294.
    17. Kao, Erin H. & Ho, Tsung-wu & Fung, Hung-Gay, 2015. "Price linkage between the US and Japanese futures across different time zones: An analysis of the minute-by-minute data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 321-336.
    18. Samuel D. Barrows, 2020. "Did the US Shale Oil Revolution Ruin Oil Industry Stock Market Returns?," International Journal of Energy Economics and Policy, Econjournals, vol. 10(4), pages 1-8.
    19. 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).
    20. Jian Yang & Yinggang Zhou, 2020. "Return and volatility transmission between China's and international crude oil futures markets: A first look," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(6), pages 860-884, June.
    21. Burns, Christopher B. & Kane, Stephen, 2022. "Arbitrage breakdown in WTI crude oil futures: An analysis of the events on April 20, 2020," Resources Policy, Elsevier, vol. 76(C).

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