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Price relationships in crude oil futures: new evidence from CFTC disaggregated data

  • Chevallier, Julien

This paper attempts to reconcile two strands of literature on oil and speculation: one that posits the predominance of supply/demand fundamentals, and one that investigates the hypothesis of speculative trading. To do so, we develop a Markov switching analysis based on the WTI crude oil futures price, CFTC disaggregated data, and fundamentals of the oil price. The benefits of this approach are twofold: (1) the model is able to track changes in the underlying business cycle, and (2) the model explicitly incorporates data on the net positions of money managers as a proxy for speculative activity. After verifying the sensitivity of our results to the inclusion of supply and demand factors on the oil market, we cannot eliminate statistically the possibility of speculation among the main reasons behind the 2008 oil price swing. We also explicitly recognize the influence of many other economic variables during that specific time period.This paper attempts to reconcile two strands of literature on oil and speculation: one that posits the predominance of supply/demand fundamentals, and one that investigates the hypothesis of speculative trading. To do so, we develop a Markov switching analysis based on the WTI crude oil futures price, CFTC disaggregated data, and fundamentals of the oil price. The benefits of this approach are twofold: (1) the model is able to track changes in the underlying business cycle, and (2) the model explicitly incorporates data on the net positions of money managers as a proxy for speculative activity. After verifying the sensitivity of our results to the inclusion of supply and demand factors on the oil market, we cannot eliminate statistically the possibility of speculation among the main reasons behind the 2008 oil price swing. We also explicitly recognize the influence of many other economic variables during that specific time period.

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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/11712.

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Date of creation: Apr 2013
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Publication status: Published in Environmental Economics and Policy Studies, 2013, Vol. 15, no. 2. pp. 133-170.Length: 37 pages
Handle: RePEc:dau:papers:123456789/11712
Contact details of provider: Web page: http://www.dauphine.fr/en/welcome.html

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  20. Fattouh, Bassam, 2010. "The dynamics of crude oil price differentials," Energy Economics, Elsevier, vol. 32(2), pages 334-342, March.
  21. Chan, Kam Fong & Treepongkaruna, Sirimon & Brooks, Robert & Gray, Stephen, 2011. "Asset market linkages: Evidence from financial, commodity and real estate assets," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1415-1426, June.
  22. Fong, Wai Mun & See, Kim Hock, 2002. "A Markov switching model of the conditional volatility of crude oil futures prices," Energy Economics, Elsevier, vol. 24(1), pages 71-95, January.
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