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Are crude oil markets cointegrated? Testing the co-movement of weekly crude oil spot prices

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  • Galay, Gregory

Abstract

The emergence of large, persistent price differentials between land-locked North American crude oils and crude oils with access to tidewater in 2011 has cast doubt on the “one great pool” hypothesis first proposed by Adelman (1984). This article reevaluates the “one great pool” hypothesis by analyzing the co-movement of weekly crude oil spot prices from different geographic regions for the period from May 2, 2008 to June 8, 2018 using a cointegration approach that allows for endogenously determined structural breaks. The results presented in this article indicate crude oil prices, for similar and different quality crude oils, are cointegrated with a structural break, suggesting world oil markets are still integrated. Estimated structural break dates range from the July 30, 2010 to November 13, 2015, with structural breaks between land-locked North American crude oils and tidewater crude oils occurring between July 2010 and August 2011. These break dates are consistent with the beginning of the unconventional crude oil production boom in North America and propose that this significant event may have changed the long-run relationship between land-locked North American crude oils and tidewater crude oils.

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  • Galay, Gregory, 2019. "Are crude oil markets cointegrated? Testing the co-movement of weekly crude oil spot prices," Journal of Commodity Markets, Elsevier, vol. 16(C).
    • Handle: RePEc:eee:jocoma:v:16:y:2019:i:c:s2405851317302015
    DOI: 10.1016/j.jcomm.2019.02.003
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    3. Viviana Fanelli & Claudio Fontana & Francesco Rotondi, 2023. "A hidden Markov model for statistical arbitrage in international crude oil futures markets," Papers 2309.00875, arXiv.org.
    4. Kumar, Satish, 2022. "Speed of adjustment in energy and metal prices: Evidence from India," Resources Policy, Elsevier, vol. 78(C).
    5. 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.
    6. Bampinas, Georgios & Panagiotidis, Theodore & Papapanagiotou, Georgios, 2023. "Oil shocks and investor attention," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 68-81.
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    8. 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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