Joint Dynamics of American and European oil prices
ISBN
9781137377340
Type
forthcoming
Date Issued
2014
Author(s)
Abstract
This chapter examines the dynamic relationship between two major international oil benchmarks, namely West Texas Intermediate (WTI) and Brent, as reference crudes for the American and European market, respectively. We provide background information on crude oil markets, including factors driving oil prices and historical events that affected the prices during the sample period. In a GARCH multivariate framework, we find that WTI is more responsive to market shocks than Brent, which enforces its position as a leading benchmark for crude oil pricing. Moreover, the conditional correlation between the benchmarks is rather high, with partly severe variations. The increased prices volatility causes the disconnections between the markets and thus downward spikes in the conditional correlation between WTI and Brent are observed. Second, we use cointegration analysis to investigate the co-movements of the Brent and WTI price series. The causality between the price series is predominantly bi-directional with slightly overwhelming influence of WTI over Brent. In the long-run, these two oil markets are unified rather than regionalized. In the short-run, however, these markets tend towards regionalization.
Language
English
HSG Classification
contribution to scientific community
Refereed
No
Book title
Energy Pricing Models: Recent Advances, Methods, and Tools
Publisher
Palgrave Macmillan
Publisher place
New York
Subject(s)
Eprints ID
231954