Modelling the impact of oil prices on Vietnam’s stock prices

The goal of this paper is to model the impact of oil prices on Vietnam’s stock prices. We use daily data for the period 2000–2008 and include the nominal exchange rate as an additional determinant of stock prices. We find that stock prices, oil prices and nominal exchange rates are cointegrated, and oil prices have a positive and statistically significant impact on stock prices. This result is inconsistent with theoretical expectations. The growth of the Vietnamese stock market was accompanied by rising oil prices. However, the boom of the stock market was marked by increasing foreign portfolio investment inflows which are estimated to have doubled from US$0.9 billion in 2005 to US$1.9 billion in 2006. There was also a change in preferences from holding foreign currencies and domestic bank deposits to stocks local market participants, and there was a rise in leveraged investment in stock as well as investments on behalf of relatives living abroad. It seems that the impact of these internal and domestic factors were more dominant than the oil price rise on the Vietnamese stock market.     

The impact of oil prices on GDP in European countries: An empirical investigation based on asymmetric cointegration

This paper investigates the existence of a long-term relationship between oil prices and GDP in 12 European countries. To account for the fact that economic activity responds asymmetrically to oil price shocks, we propose an approach based on asymmetric cointegration. Our results show that, while standard cointegration is rejected, there is evidence for asymmetric cointegration between oil prices and GDP in the majority of the considered European countries.     

World oil prices and agricultural commodity prices: Evidence from an emerging market

Oil prices are thought to have direct effect on agricultural prices followed by an indirect effect through the exchange rate. This paper examines the short- and long-run interdependence between world oil prices, lira-dollar exchange rate, and individual agricultural commodity prices (wheat, maize, cotton, soybeans, and sunflower) in Turkey. To this end, the Toda-Yamamoto causality approach and generalized impulse-response analysis for identification of the long- and short-run interrelationships are applied to the monthly data spanning from January 1994 to March 2010. The impulse-response analysis suggests the Turkish agricultural prices do not significantly react to oil price and exchange rate shocks in the short-run. The long-run causality analysis reveals that the changes in oil prices and appreciation/depreciation of the Turkish lira are not transmitted to agricultural commodity prices in Turkey. Hence, our results support neutrality of agricultural commodity markets in Turkey to both direct and indirect effects of oil price changes.     

The long-run impact of energy prices on world agricultural markets: The role of macro-economic linkages

The world prices of some food and energy products have followed similar large swings in recent years. We investigate the long-run relationship between these prices using a world Computable General Equilibrium model with detailed representations of food and energy markets. Particular attention is paid to specifying macro-economic linkages which have often been overlooked in recent analysis and debate. We find that the omission of these macro-economic linkages has a substantial bearing on this relationship. A positive relationship due to the cost push effect has been identified in most analysis, but we find that the introduction of the real income effect may indeed imply a negative relationship between world food and energy prices.     

World oil and agricultural commodity prices: Evidence from nonlinear causality

The increasing co-movements between the world oil and agricultural commodity prices have renewed interest in determining price transmission from oil prices to those of agricultural commodities. This study extends the literature on the oil–agricultural commodity prices nexus, which particularly concentrates on nonlinear causal relationships between the world oil and three key agricultural commodity prices (corn, soybeans, and wheat). To this end, the linear causality approach of Toda–Yamamoto and the nonparametric causality method of Diks–Panchenko are applied to the weekly data spanning from 1994 to 2010. The linear causality analysis indicates that the oil prices and the agricultural commodity prices do not influence each other, which supports evidence on the neutrality hypothesis. In contrast, the nonlinear causality analysis shows that: (i) there are nonlinear feedbacks between the oil and the agricultural prices, and (ii) there is a persistent unidirectional nonlinear causality running from the oil prices to the corn and to the soybeans prices. The findings from the nonlinear causality analysis therefore provide clues for better understanding the recent dynamics of the agricultural commodity prices and some policy implications for policy makers, farmers, and global investors. This study also suggests the directions for future studies.     

The effect of the downturn in oil prices on the external surpluses of the GCC countries

The paper examines the impact of the downturn in oil prices on the performance of the external sectors of the members of the Gulf Co-operation Council (GCC). The paper also developes and tests a simultaneous-equations model to examine the interaction between the economies of the GCC and the rest of the world. The analysis shows that the slump in oil exports has reduced drastically the external surplus of the GCC and has resulted in structural shifts in the import and resource balance functions.     

Unit root properties of crude oil spot and futures prices

In this article, we examine whether WTI and Brent crude oil spot and futures prices (at 1, 3 and 6 months to maturity) contain a unit root with one and two structural breaks, employing weekly data over the period 1991–2004. To realise this objective we employ Lagrange multiplier (LM) unit root tests with one and two endogenous structural breaks proposed by Lee and Strazicich [2003. Minimum Lagrange multiplier unit root test with two structural breaks. Review of Economics and Statistics, 85, 1082–1089; 2004. Minimum LM unit root test with one structural break. Working Paper no. 04–17, Department of Economics, Appalachian State University]. We find that each of the oil price series can be characterised as a random walk process and that the endogenous structural breaks are significant and meaningful in terms of events that have impacted on world oil markets.     

Oil prices without OPEC: A walk on the supply-side

The rapid increases of oil prices during the 1970s are commonly regarded asprima facie evidence of monopoly power. This paper applies the theory of exhaustible resources to estimate the equilibrium oil prices (also known as ‘efficiency prices’) which would have prevailed in the absence of monopoly profits. The theory incorporates an extraction cost function wherein cost is a rising function of the cumulative amount of oil extracted. The model is used to simulate efficiency price paths under a variety of assumptions about extraction costs and real interest rates which are representative of perceptions at various times in recent history. These simulations show that the price increases of 1974 and 1979–1980 can be explained as a response to supply-side changes, espicially changes in the perceived cost of the backstop technology and the fall in real interest rates in the mid and late 1970s. Thus, while efficiency prices were high in the 1970s, relative to extraction costs, it is plausible that average monopoly profits were negligible. This situation appears to have changed in the early 1980s due to the return of real interest rates to their historic levels. In early 1982, even spot prices, already below official prices, were substantially above the estimated efficiency or competitive price level. On the other hand, efficiency prices remain far above extraction costs. Thus, even if the price-setting power of OPEC were eroded by competition, the real price of oil would not fall below the level established in 1974.     

Analysis of real oil prices via trend-cycle decomposition

The recent fluctuations in the oil prices have intensified the discussion on the dynamics and causes of real oil price changes. While the long-run component of real oil prices seems to have a stochastic trend, global real economic activity has been thought to generate important changes in real oil prices. Based on this argument, in this paper, we analyze the real oil prices within a trend-cycle decomposition framework, where we impose a stochastic trend and assume the cyclical term to be affected by global economic conditions. We also let the parameters vary over time to see whether shocks to trend and the cycle have changing effects on the real oil prices. As a result, we find that shocks to trend are more persistent recently. In that sense, this paper contributes to the literature by offering an explanation for the increased volatility in oil prices. In addition, we show that global economic activity contributed also to the previous oil price shocks, which were regarded mainly as supply-side driven.     

Assessing the effect of oil price on world food prices: Application of principal component analysis

The objective of this paper is to investigate the co-movement of food prices and the macroeconomic index, especially the oil price, by principal component analysis to further understand the influence of the macroeconomic index on food prices. We examined the food prices of seven major products: eggs, meat, milk, oilseeds, rice, sugar and wheat. The macroeconomic variables studied were crude oil prices, consumer price indexes, food production indexes and GDP around the world between 1961 and 2005. We use the Scree test and the proportion of variance method for determining the optimal number of common factors. The correlation coefficient between the extracted principal component and the macroeconomic index varies between 0.87 for the world GDP and 0.36 for the consumer price index. We find the food production index has the greatest influence on the macroeconomic index and that the oil price index has an influence on the food production index. Consequently, crude oil prices have an indirect effect on food prices.     

Horizontal and vertical transmissions in the US oil supply chain

Oil prices, inventory levels, and utilization rates are influenced by changes that are transmitted horizontally and/or vertically through the energy supply chain. We define horizontal transmissions as changes that are generated by linkages among fuels at a similar stage of processing while vertical transmissions are changes that are generated by upstream/downstream linkages in the oil supply chain. Here, we investigate vertical and horizontal transmissions by estimating vector error correction models (VECMs) that represent relationships among the price of crude oil, US refinery utilization rates, US stocks of crude oil, US stocks of motor gasoline, the US price of motor gasoline, and the US price of a substitute fuel, natural gas. Causal relationships estimated from both weekly and quarterly observations indicate that the price of crude oil is an important gateway for disturbances to the oil supply chain. Impulse response functions indicate that disturbances to crude oil prices ripple down the oil supply chain and affect inventory behaviors, refinery utilization rates, and the price of motor gasoline, and are transmitted laterally to the natural gas market.     

Optimal oil import tariffs: An international perspective for the 1980s

Since the oil price explosion of 1973–74, oil policy has focused on two problem areas: firstly, chronically high international oil prices and secondly, vulnerability to disruptions in oil supply. Until recently, many held that measures designed to reduce the level of oil imports would mitigate both of these problems. Oil import reductions would put downward pressure on world oil prices during normal supply conditions, while simultaneously reducing the importer's exposure to oil supply interruptions. By the end of the 1970s, however, several analysts had concluded that certain characteristics of the world oil market would minimize both of these potential benefits of oil import reductions. Now, after more than two years of glut on the world oil market, many doubt that policy-induced import reductions would have any beneficial effects at all. This paper assesses the value of oil import reduction policies during the oil market conditions that are expected to prevail during the 1980s. The conclusion is that there are still substantial benefits to be gained by implementing efficient import reductions. This conclusion is robust over a broad range of assumptions about OPEC objectives and other key determinants of world oil market behaviour.     

The impact of global oil price shocks on China’s stock returns: Evidence from the ARJI(-ht)-EGARCH model

This paper investigated the impact of global oil price shocks on China’s stock market, using the ARJI(-h_t)-EGARCH model. We separated the volatilities into expected, unexpected and negatively unexpected ones to identify how oil prices influence the stock returns. The results reveal that there are jumps varying in time in China’s stock market, and that China’s stock returns are correlated only with expected volatilities in world oil prices, contrary to previous research. While world oil prices have a positive effect on China’s stock returns, results from this study suggest that this effect is minor.     

Oil prices and current account: A structural analysis for the Turkish economy

Although there has been an increasing number of studies about the effects of oil prices on the macroeconomic performances, the literature on the interaction between oil prices and current account is limited, especially for oil importing developing countries. This paper analyzes the impact of oil prices on the current account balances for the Turkish economy using a structural vector autoregression model. Our model allows us to identify the net effect of oil prices on current account balances after controlling for other factors such as output gap and exchange rate misalignment. The results show that the response of current account ratio to oil price shock increases gradually up to the first three months and then starts to decrease, which indicates a significant effect of oil price shocks in the short-run. Moreover, when the obtained structural shocks are employed in a simple regression analysis, the parameter regarding the oil price shocks is found to be negative and statistically significant. The final section discusses the policy implications of the results.     

Cointegration between oil spot and future prices of the same and different grades in the presence of structural change

The purpose of this study is to examine whether crude oil spot and futures prices of the same and different grades are cointegrated using a residual-based cointegration test that allows for one structural break in the cointegrating vector and high-frequency data. We choose the US WTI and the UK Brent as the representative crudes for this analysis since these two crudes have well-established spot and futures markets. We find that spot and future prices of the same grade as well as spot and futures prices of different grades are cointegrated. We examine potential causes of structural change as revealed by the cointegration test in terms of events that have impacted on world oil markets as well as discuss the implications of the results for hedge managers, investors and regulators.     

The impact of Australian ETS news on wholesale spot electricity prices: An exploratory analysis

This article investigates the impact of news concerning the development of emissions trading in Australia (such as the Carbon Pollution Reduction Scheme (CPRS)) on wholesale electricity spot prices, by using a database of 117 news announcements from December 1, 1998 to July 1, 2009. As power producers constitute the bulk of the participants of the proposed Australian emissions trading scheme, regulatory changes (about allocation, banking, coverage, targets) are indeed likely to affect the five interconnected electricity markets in New South Wales, Queensland, South Australia, Victoria, and Tasmania. We assess these effects with an ARMA(1,1)-GARCH(1,1) model, where daily electricity spot prices are regressed against exogenous variables in the mean and variance equations. This article constitutes the first empirical analysis of Australian ETS news effects on electricity wholesale spot prices. Our results show two asymmetric types of news effects, depending on their information content.     

A comparison of petroleum futures versus spot prices as predictors of prices in the future

Even though studies have indicated that the futures market leads the spot market in price discovery, this paper hypothesizes that the ‘predictive’ significance of each should be the same. A number of different statistical tests are presented to test this hypothesis. When deseasonalized data is employed the predictive significance of each series is found to be the same, but when actual prices are employed, futures prices did correctly anticipate the observed seasonal pattern.     

On the climate change effects of high oil prices

Some commentators claim that the oil market has achieved within a few months what international bureaucrats have struggled to obtain in a decade of international climate negotiations. The fallacy of the oil price argument is that substitutions and income effects that would result from higher oil prices are not considered. Using a computable general equilibrium model, we show that high oil prices cannot serve as substitutes for effective climate policies.     

Differing perspectives of major oil firms on future energy developments: An illustrative framework

This study develops a framework to analyse the perspectives of major oil firms in terms of their perceptions of current energy developments and projections of future energy potentials, and illustrates their views on the possibility of a paradigm shift in fuel use. The three A's themes—availability of resource (AV), applicability of technology (AP) and acceptability by society (AC)—make up the analytical framework. Divergence in oil firms’ behaviour and perspectives are captured by the 3-A triangle that illustrates how the four largest oil firms in the world balance their stakes among the three A's. ExxonMobil's position is markedly skewed towards the theme of AV, whilst BP has the most balanced approach among the four. Shell and Total both share a similarly shaped 3-A triangle with more stakes placed on the theme of AP. The results would imply that a paradigm shift in resource use or a full-scale transition to a backstop technology is unlikely in the coming decades.     

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.