The price of crude oil in the international energy market: A political analysis

Political processes, claims the author, offer the chief explanation of price trends in the international oil market. Although these processes take place within an economic framwork, the band between the costs of production and those of alternative sources of energy within which prices could move, is so large that is has lost much of its practical effect in determining prices. A number of actors are identified whose interaction principally determines prices. The historical development of this interaction is traced and the author concludes that it may ultimately be in the interests of all actors — producers, consumers, companies and developing nations — to coordinate their efforts in synchronising the introduction of new energy sources to replace oil.     

The role of market fundamentals and speculation in recent price changes for crude oil

I hypothesize that the price spike and collapse of 2007–2008 are driven by both changes in both market fundamentals and speculative pressures. Contrary to arguments for a demand shock, I hypothesize that prices rise sharply in 2007–2008 because ongoing growth in Chinese oil demand runs into a sudden and unexpected halt to a decade long increase in non-OPEC production. This caused a loss of OPEC spare capacity because increased demand for OPEC production runs ahead of increases in OPEC capacity. These changes are reinforced by speculative expectations. Although difficult to measure directly, I argue for the role of speculation based on the following: (1) a significant increase in private US crude oil inventories since 2004; (2) repeated and extended break-downs (starting in 2004) in the cointegrating relationship between spot and far month future prices that are inconsistent with the law of one price and arbitrage opportunities; and (3) statistical and predictive failures by an econometric model of oil prices that is based on market fundamentals. These changes are related to the behavior and impact of noise traders on asset prices to sketch mechanisms by which speculative expectations can affect crude oil prices.     

The price of OPEC crude oil

What will be the price of petroleum in 1985? Dr Cochrane describes a methodology for determining the price of OPEC crude oil in 1985 assuming a zero growth in output. He reviews the energy balance sheets of OECD areas — North America, Western Europe and Japan — and concludes that a price of $34 per tonne could be realised by members of OPEC by 1985, but that this depends on keeping annual output for 1985 below the annual output for 1975.     

Multiscale entropy analysis of crude oil price dynamics

Price formation in crude oil markets is the result of the action of many participants (e.g., producers, governments, speculators, etc.) whose effects are perceived at different time scales, from days to years. The diversity of participants as well as the occurrence of extreme socio-political events yields a market with complex price evolution. This paper uses entropy methods to monitor the evolution of crude oil price movements. As the complexity of the price can depend of the time horizon, entropy computations are performed for different time scales via low-pass filtering of the price difference dynamics. The results are interpreted in term of relative market efficiency concepts in the sense that high entropy values should be related to a more complex and, hence, less predictable market evolution. It is shown that the highest market efficiency is found for small time scales up to one or two weeks. The multiscale entropy pattern for high time scales, longer than one quarter, is interesting as it shows alternating periods of high and low entropy levels. Interestingly, this alternating pattern has a dominant spectral component of about 4.3 years, which could be related to macroeconomic (Kitchin) business cycles. It is shown that U.S. recessions in the recent 25 years are coincident with periods of reduced entropy levels, meaning that during economic downturn the long-run market complexity is drastically reduced. The possible effects of extreme events (e.g., Iraq War) are analyzed in terms of the relative market efficiency, suggesting that some events have affected the short-term but not the long-term market complexity. Overall, these results show that methods based on entropy concepts can shed light on the structure of crude oil markets as well as on its link to macroeconomic conditions and socio-political extreme events.     

Investigating price clustering in the oil futures market

Price clustering can be a source of market inefficiency. It follows that searching for price clustering in markets have gone beyond share prices into real estate, interest rate, and exchange rate markets. In this paper, we extend this line of research to oil futures markets. In particular, we consider five different forms of oil futures contracts and test for evidence of price clustering. Our results reveal strong presence of price clustering in the oil futures market. This finding implies that price clustering can potentially be a source of oil market inefficiency, which can influence trading strategies.     

Regime-switching stochastic volatility: Evidence from the crude oil market

This paper incorporates regime-switching into the stochastic volatility (SV) framework in an attempt to explain the behavior of crude oil prices in order to forecast their volatility. More specifically, it models the volatility of oil return as a stochastic volatility process whose mean is subject to shifts in regime. The shift is governed by a two-state first-order Markov process. The Bayesian Markov Chain Monte Carlo method is used to estimate the models. The main findings are: first, there is clear evidence of regime-switching in the oil market. Ignoring it will lead to a false impression that the volatility is highly persistent and therefore highly predictable. Second, incorporating regime-switching into the SV framework significantly enhances the forecasting power of the SV model. Third, the regime-switching stochastic volatility model does a good job in capturing major events affecting the oil market.     

The effect of uncertainty and aggregate investments on crude oil price dynamics

This paper is a study of the dynamics of the oil industry and we derive a mean reverting process for the crude oil price. Oil is supplied by a market leader, OPEC, and by an aggregate that represents non-OPEC producers. The non-OPEC producers take the oil price as given. The cost of non-OPEC producers depends on past investments. Shifts in these investments are influenced by costs of structural change in the construction industry. A drop in the oil price to below a given level triggers lower investments, but if the oil price reverts back to a high level investments may not immediately expand. In an uncertain oil demand environment cost of structural change creates a value of waiting to invest. This investment behaviour influences the oil price process.     

The impact of price variation on the production of crude oil and natural gas

This paper is directed at examining the impact of changing prices on the level of production of crude oil and natural gas in the United States. By using a cross correlation test for unidirectional causality, it is clearly demonstrated that for both crude oil and natural gas, domestic production is affected by changing prices. The implications are clear. The decontrol of the price of crude oil and the deregulation of natural gas prices will lead to additional production in the near term.     

油价大盘调整下新能源的投资机会

19日,沪深两市指数以及个股全部涨停,这是自沪深两市有涨跌幅限制以来,第二次出现大盘涨停,上一次发生在7年前的2001年10月23日.     

The impact of crude oil price fluctuations on unemployment in the United States

This study begins by asking whether fluctuations in the price of crude oil have affected employment in the United States. After reviewing previous assessments of the issue, the existence of an empirical relationship between unemployment and crude oil price volatility is established using Granger causality. Subsequently, the nature of the relationship is estimated with the results suggesting that at least three full years are required before measurable impacts of a percentage change in the real price of crude oil on the change in unemployment are exhausted. Finally, the structural stability of the functional relationship between the change in unemployment, the volatility of the price of crude oil and the percentage change in gross national product is examined.     

The integration of China into the world crude oil market since 1998

The integration of China into the world oil market is an important issue for at least two reasons. First, the influence of the country on the world oil market is dependent on the level of the integration. Second, integration into the world oil market means that China is opening itself up to potential disturbances in the world market and this leads to significant energy security concerns for the country. The aim of this paper is to investigate whether or not China is an integral part of the world oil market. By reviewing the relevant trade and pricing policies of the Chinese government as well as the behavior of the Chinese national oil companies, we find that China is actively engaging itself in the world oil market. Our time-series results show that the Chinese oil price is cointegrated with the major oil prices in the world and a high degree of co-movement between the prices is found. Causality between the price pairs is found to be bi-directional in most cases. The empirical results suggest that China is now an integral part of the world oil market.     

Loss aversion and price volatility as determinants of attitude towards and preference for variable price in the Swedish electricity market

The results of a survey of a random sample of 488 Swedish residents showed that a positive attitude towards and preference for a variable price agreement with the incumbent electricity supplier was negatively affected by loss aversion, and a positive attitude also negatively affected by beliefs about price volatility. Although correlated with attitude and preference, age, education, and current choice of a variable price agreement had no independent effects. Income and current electricity costs had no effects.     

Value-at-risk estimation of crude oil price using MCA based transient risk modeling approach

With the increasing level of volatility in the crude oil market, the transient data feature becomes more prevalent in the market and is no longer ignorable during the risk measurement process. Since there are multiple representations for these transient data features using a set of bases available, the sparsity measure based Morphological Component Analysis (MCA) model is proposed in this paper to find the optimal combinations of representations to model these transient data features. Therefore, this paper proposes a MCA based hybrid methodology for analyzing and forecasting the risk evolution in the crude oil market. The underlying transient data components with distinct behaviors are extracted and analyzed using MCA model. The proposed algorithm incorporates these transient data features to adjust for conservative risk estimates from traditional approach based on normal market condition during its risk measurement process. The reliability and stability of Value at Risk (VaR) estimated improve as a result of finer modeling procedure in the multi frequency and time domain while maintaining competent accuracy level, as supported by empirical studies in the representative West Taxes Intermediate (WTI) and Brent crude oil market.     

A combined decline-curve and price analysis of US crude oil production, 1968–1976

An approach combining decline-curve and price analysis is used to model US oil production over the period 1968–1976. The decline curve characteristics of US oil production are captured with time series analysis. Regression analysis is then used to adjust the time series estimates in order to account for price changes. Significant but small price effects are shown to exist in the short run and policy implications of the analytical findings are explored.     

The substitutive effect of biofuels on fossil fuels in the lower and higher crude oil price periods

Various biofuels, including bioethanol and biodiesel are technologically being considered replacements for fossil fuels, such as the conventional gasoline and diesel. This paper aims to measure whether economic substitutability can be generated during periods of higher and/or lower prices of crude oil. The empirical results of the bivariate EGARCH model prove that this substitutive effect was occurred during the higher crude oil price period due to the significant price spillover effects from crude oil futures to corn and soybean futures, indicating that the increase in food prices can be attributed to more consumption of biofuels. We suggest more extensive research in the search for fuel alternatives from inedible feedstock such as pongamia, jojoba, jatropha, especially the 2nd generation biofuel technologies such as algae-based biofuels.     

A novel algorithm for prediction of crude oil price variation based on soft computing

In this paper a method based on soft computing approaches is developed to predict the daily variation of the crude oil price of the West Texas Intermediate (WTI). The predicted daily oil price variation is compared with the actual daily variation of the oil price and the difference is implemented to activate the learning algorithms. In order to reduce the effect of unpredictable short term disturbances, a data filtering algorithm is used. In this paper, the prediction is called “true” if the predicted variation of the oil price has the same sign as the actual variation, otherwise the prediction is “false”. It is shown that for several randomly selected durations, the true prediction is considerably higher than the result of most recent published prediction algorithms. To ensure the accuracy and reliability of the algorithm, several on line predictions are executed during one complete month. The on line results indicate that the true predictions are consistently the same percentage for periods of one month.     

Impact of speculator's expectations of returns and time scales of investment on crude oil price behaviors

Based on time series of crude oil prices (daily spot), this paper analyses price fluctuation with two significant parameters τ (speculators' time scales of investment) and ε (speculators' expectations of return) by using Zipf analysis technique, specifically, by mapping τ-returns of prices into 3-alphabeted sequences (absolute frequencies) and 2-alphabeted sequences (relative frequencies), containing the fundamental information of price fluctuations. This paper empirically explores parameters and identifies various types of speculators' cognition patterns of price behavior. In order to quantify the degree of distortion, a feasible reference is proposed: an ideal speculator. Finally, this paper discusses the similarities and differences between those cognition patterns of speculators' and those of an ideal speculator. The resultant analyses identify the possible distortion of price behaviors by their patterns.     

Estimating the impact of extreme events on crude oil price: An EMD-based event analysis method

The impact of extreme events on crude oil markets is of great importance in crude oil price analysis due to the fact that those events generally exert strong impact on crude oil markets. For better estimation of the impact of events on crude oil price volatility, this study attempts to use an EMD-based event analysis approach for this task. In the proposed method, the time series to be analyzed is first decomposed into several intrinsic modes with different time scales from fine-to-coarse and an average trend. The decomposed modes respectively capture the fluctuations caused by the extreme event or other factors during the analyzed period. It is found that the total impact of an extreme event is included in only one or several dominant modes, but the secondary modes provide valuable information on subsequent factors. For overlapping events with influences lasting for different periods, their impacts are separated and located in different modes. For illustration and verification purposes, two extreme events, the Persian Gulf War in 1991 and the Iraq War in 2003, are analyzed step by step. The empirical results reveal that the EMD-based event analysis method provides a feasible solution to estimating the impact of extreme events on crude oil prices variation.     

Nonlinear causality between crude oil price and exchange rate: A comparative study of China and India

While several studies have examined the linear causal relationship between oil prices and exchange rates, little is known about the nonlinear causality between these two variables. The present paper tries to fill this research gap in the context of India and China. By applying the Hiemstra and Jones (1994) nonlinear Granger causality test to the VAR residuals, the study finds a significant bi-directional nonlinear Granger causality between oil prices and exchange rates in both countries. The findings suggest that the nonlinearity of oil price influences the exchange rate irrespective of the exchange rate regimes. Further, to check robustness, the persistence in the variance of oil price and exchange rate is taken into account using a GARCH (1, 1) model. While the results consistently hold in the case of India, with respect to China, a unidirectional causality runs from exchange rate to oil price. However, the oil price in China does not Granger cause exchange rate.     

Wavelet decomposition and regime shifts: Assessing the effects of crude oil shocks on stock market returns

While there is a large body of empirical studies on the relationship between crude oil price changes and stock market returns, they have failed to achieve a consensus on this subject. In this paper, we combine wavelet analysis and Markov Switching Vector Autoregressive (MS-VAR) approach to explore the impact of the crude oil (CO) shocks on the stock market returns for UK, France and Japan over the period from January 1989 to December 2007. Our procedure involves the estimation of the extended MS-VAR model in order to investigate the importance of the resultant wavelet filtering series (after removing random components) in determining the behavior of the stock market volatilities. We show that CO shocks do not affect the recession stock market phases (except for Japan). However, they significantly reduce moderate and/or expansion stock market phases temporarily. Moreover, this negative relationship appears to be more pronounced during the pre-1999 period. The empirical findings will prove extremely useful to investors who need to understand the exact effect of international oil changes on certain stocks prices as well as for policy managers who need a more thorough evaluation about the efficiency of hedging policies affected by oil price changes.