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Trends and Contagion in WTI and Brent Crude Oil Spot and Futures Markets - The Role of OPEC in the last Decade

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  • Klein, Tony

Abstract

This article examines the interconnectedness of WTI and Brent prices on different resolutions of price movements. Firstly, within a multivariate BEKK framework we identify high but volatile correlations with recurring highs around 0.8 and multiple periods of decoupling. OPEC meetings increase the correlation in the short run. Secondly, linear l1-trends reveal that long-term movements of WTI and Brent are driven by the same dynamics, confirming the `one great pool' hypothesis. OPEC meetings have only little impact on long-term price trends. Thirdly, we find leading effects of WTI over Brent by short-term trends of several days, especially in a negative direction. These trends have an asymmetrical effect on volatility; negative trends cause a stronger increase than positive trends. These findings are of interest to policy makers as well as hedging strategies of crude oil portfolios and provide insight into long-term movements of crude prices.

Suggested Citation

  • Klein, Tony, 2018. "Trends and Contagion in WTI and Brent Crude Oil Spot and Futures Markets - The Role of OPEC in the last Decade," QBS Working Paper Series 2018/05, Queen's University Belfast, Queen's Business School.
    • Handle: RePEc:zbw:qmsrps:201805
    DOI: 10.2139/ssrn.3253073
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    Cited by:

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    2. 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).
    3. Cui, Jinxin & Maghyereh, Aktham, 2023. "Time-frequency dependence and connectedness among global oil markets: Fresh evidence from higher-order moment perspective," Journal of Commodity Markets, Elsevier, vol. 30(C).
    4. Luo, Jiawen & Klein, Tony & Walther, Thomas & Ji, Qiang, 2021. "Forecasting Realized Volatility of Crude Oil Futures Prices based on Machine Learning," QBS Working Paper Series 2021/04, Queen's University Belfast, Queen's Business School.
    5. Deyuan Zhang & Wensen She & Fang Qu & Chunyan He, 2023. "Asymmetric Risk Connectedness between Crude Oil and Agricultural Commodity Futures in China before and after the COVID-19 Pandemic: Evidence from High-Frequency Data," Energies, MDPI, vol. 16(16), pages 1-19, August.

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    More about this item

    Keywords

    Correlation; l1-trends; Leading Effects; OPEC; Volatility Spillover;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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