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Crude oil price and speculative activity: a cointegration analysis

Author

Listed:
  • Robert Socha

    (University of Łódź)

  • Piotr Wdowiński

    (University of Łódź)

Abstract

The aim of the study is to discuss the relationship of the crude oil price, speculative activity and fundamental factors. An empirical study was conducted with a VEC model. Two cointegrating vectors were identified. The first vector represents the speculative activity. We argue that the number of short non-commercial positions increases with the crude oil stock and price, decreases with the higher number of long non-commercial positions. A positive trend of crude oil prices may be a signal for traders outside the industry to invest in the oil market, especially as access to information could be limited for them. The second vector represents the crude oil price under the fundamental approach. The results support the hypothesis that the crude oil price is dependent on futures trading. The higher is a number of commercial long positions, the greater is the pressure on crude oil price to increase.

Suggested Citation

  • Robert Socha & Piotr Wdowiński, 2018. "Crude oil price and speculative activity: a cointegration analysis," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 10(3), pages 263-304, September.
    • Handle: RePEc:psc:journl:v:10:y:2018:i:3:p:263-304
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    More about this item

    Keywords

    crude oil price; speculation; futures; cointegration; vector error correction model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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