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Co-integration of ICE Gas oil and Crude oil futures

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  • Westgaard, Sjur
  • Estenstad, Maria
  • Seim, Maria
  • Frydenberg, Stein

Abstract

In this paper, the relationship between Gas oil and Brent Crude oil futures prices is investigated. The analysis is based on daily price series for five different contract lengths traded on ICE Futures Europe. The price series and their first differences are tested for stationarity. Linear relationships between the pair-wise Gas oil and Crude oil contracts are then tested for co-integration. A co-integrated relationship is found for the 1 and 2 month contracts covering data from 1994 to 2009, and Error Correction Models are established to estimate the relationships. No co-integrated relationships are found for the 3, 6 and 12 month contracts covering the period 2002-2009, nor for the 1 and 2 month contracts for this period. The futures prices for this period are collected from a volatile market, including hurricane Katrina, the economic boom and the following financial crises which might explain these results. Thus, in such volatile periods the spread between Gas oil and Crude oil is likely to deviate, and it might take several years until it reverts to its equilibrium value. For energy traders and hedgers, this will imply that exposures to the crack spread should be treated with great care in such market environments.

Suggested Citation

  • Westgaard, Sjur & Estenstad, Maria & Seim, Maria & Frydenberg, Stein, 2011. "Co-integration of ICE Gas oil and Crude oil futures," Energy Economics, Elsevier, vol. 33(2), pages 311-320, March.
  • Handle: RePEc:eee:eneeco:v:33:y:2011:i:2:p:311-320
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    References listed on IDEAS

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    Cited by:

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    2. Xianfang Su & Huiming Zhu & Xinxia Yang, 2019. "Heterogeneous Causal Relationships between Spot and Futures Oil Prices: Evidence from Quantile Causality Analysis," Sustainability, MDPI, Open Access Journal, vol. 11(5), pages 1-17, March.
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    6. Joëts, Marc & Mignon, Valérie, 2012. "On the link between forward energy prices: A nonlinear panel cointegration approach," Energy Economics, Elsevier, vol. 34(4), pages 1170-1175.
    7. Li, Xiuming & Sun, Mei & Gao, Cuixia & He, Huizi, 2019. "The spillover effects between natural gas and crude oil markets: The correlation network analysis based on multi-scale approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 524(C), pages 306-324.
    8. Sensoy, Ahmet & Hacihasanoglu, Erk & Nguyen, Duc Khuong, 2015. "Dynamic convergence of commodity futures: Not all types of commodities are alike," Resources Policy, Elsevier, vol. 44(C), pages 150-160.
    9. Mahringer, Steffen & Prokopczuk, Marcel, 2015. "An empirical model comparison for valuing crack spread options," Energy Economics, Elsevier, vol. 51(C), pages 177-187.

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