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Measuring world oil market integration with a Thick Pen

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  • Gronwald, Marc
  • Jin, Xin

Abstract

This paper measures integration of the world crude oil market using two measures based on the so-called Thick Pen Transform (TPT): the Thick Pen Measure of Association (TPMA) as well as Multi-Thickness Thick Pen Measure of Association (MTTPMA). These are nonparametric measures which are visually interpretable and allow one to quantify how integrated crude oil markets are. They can capture time-varying co-movement of different regional crude prices as well as co-movement at different time scales; i.e. short-term and long-term features of the price series. A particular strength in this application is the ability to detect instabilities in oil price relationships. The results are in line with the notion of the world oil market as one great pool; however the application vividly illustrates that the relationship between prices of crude types such as WTI Midlands and West Texas Sour is stronger than that between, e.g., Bonny Light and Dubai.

Suggested Citation

  • Gronwald, Marc & Jin, Xin, 2024. "Measuring world oil market integration with a Thick Pen," Energy Economics, Elsevier, vol. 130(C).
    • Handle: RePEc:eee:eneeco:v:130:y:2024:i:c:s0140988324000239
    DOI: 10.1016/j.eneco.2024.107315
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    Cited by:

    1. Gurdip Bakshi & Xiaohui Gao & Zhaowei Zhang, 2024. "What Insights Do Short-Maturity (7DTE) Return Predictive Regressions Offer about Risk Preferences in the Oil Market?," Commodities, MDPI, vol. 3(2), pages 1-23, May.
    2. Marc Gronwald & Sania Wadud & Kingsley Dogah, 2024. "Informational Efficiency of World Oil Markets: One Great Pool, but with Varying Depth," CESifo Working Paper Series 11017, CESifo.

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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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