The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis.

Filippidis, M., Filis, G., Floros, C. and Kizys, R., 2017. The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis. International Journal of Banking, Accounting and Finance. (In Press)

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Abstract

This study examines the globalisation-regionalisation hypothesis in the WTI/Brent crude oil futures price differential by considering a set of the potential determinants at 1, 3 and 6 months to maturity contracts. To this end, we employ monthly data over the period 1993:1- 2016:12 for a set of crude oil-market specific (convenience yield, consumption, production) and oil-futures market specific (open interest, trading volume) determinants. Our results can be outlined as follows. First, the WTI/Brent convenience yield spread can drive a wedge between the WTI and Brent oil futures prices for the nearby month and 3-month contracts. Second, the WTI/Brent oil production spread is a significant determinant for the 1-month, the 3-month and the 6-month to maturity contracts, while the WTI/Brent oil consumption spread is significant for the 6-month contract. Third, the WTI/Brent open interest spread appears to influence the oil futures price variability between the WTI and Brent for the 3-month and the 6-month contracts, while the WTI/Brent trading volume spread lends predictive power for the 1-month and the 3-month contracts. Fourth, the oil futures market does not appear to be globalised in every time period. We provide evidence of a regionalised oil futures market in the short-run horizon. Fifth, our robustness analysis lends support to the above findings. The findings of this study provide valuable information to energy investors, traders and hedgers.

Item Type:Article
ISSN:1755-3849
Uncontrolled Keywords:Brent; convenience yield; globalisation-regionalisation hypothesis; oil futures differential, WTI.
Group:Faculty of Management
ID Code:29703
Deposited By: Unnamed user with email symplectic@symplectic
Deposited On:14 Sep 2017 14:54
Last Modified:14 Sep 2017 16:00

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