Trends and Contagion in WTI and Brent Crude Oil Spot and Futures Markets - The Role of OPEC in the last Decade

Tony Klein

doi:10.1016/j.eneco.2018.09.013

Trends and Contagion in WTI and Brent Crude Oil Spot and Futures Markets - The Role of OPEC in the last Decade

Tony Klein

Queen's Business School (QBS)

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50 Citations (Scopus)

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Abstract

This article examines the interconnectedness of WTI and Brent prices on different resolutions of price movements. Firstly, within a multivariate BEKK framework we identify high but volatile correlations with recurring highs around 0.8 and multiple periods of decoupling. OPEC meetings increase the correlation in the short run. Secondly, linear ℓ1-trends reveal that long-term movements of WTI and Brent are driven by the same dynamics, confirming the ‘one great pool’ hypothesis. OPEC meetings have only little impact on long-term price trends. Thirdly, we find leading effects of WTI over Brent by short-term trends of several days, especially in a negative direction. These trends have an asymmetrical effect on volatility; negative trends cause a stronger increase than positive trends. These findings are of interest to policy makers as well as hedging strategies of crude oil portfolios and provide insight into long-term movements of crude prices.

Original language	English
Pages (from-to)	636-646
Number of pages	11
Journal	Energy Economics
Volume	75
Early online date	25 Sept 2018
DOIs	https://doi.org/10.1016/j.eneco.2018.09.013
Publication status	Published - Sept 2018

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Trends and Contagion in WTI and Brent Crude Oil Spot and Futures Markets - The Role of OPEC in the last Decade
Copyright 2018 Elsevier. This manuscript is distributed under a Creative Commons Attribution-NonCommercial-NoDerivs License (https://creativecommons.org/licenses/by-nc-nd/4.0/), which permits distribution and reproduction for non-commercial purposes, provided the author and source are cited.
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Cite this

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title = "Trends and Contagion in WTI and Brent Crude Oil Spot and Futures Markets - The Role of OPEC in the last Decade",

abstract = "This article examines the interconnectedness of WTI and Brent prices on different resolutions of price movements. Firstly, within a multivariate BEKK framework we identify high but volatile correlations with recurring highs around 0.8 and multiple periods of decoupling. OPEC meetings increase the correlation in the short run. Secondly, linear ℓ1-trends reveal that long-term movements of WTI and Brent are driven by the same dynamics, confirming the {\textquoteleft}one great pool{\textquoteright} hypothesis. OPEC meetings have only little impact on long-term price trends. Thirdly, we find leading effects of WTI over Brent by short-term trends of several days, especially in a negative direction. These trends have an asymmetrical effect on volatility; negative trends cause a stronger increase than positive trends. These findings are of interest to policy makers as well as hedging strategies of crude oil portfolios and provide insight into long-term movements of crude prices.",

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AB - This article examines the interconnectedness of WTI and Brent prices on different resolutions of price movements. Firstly, within a multivariate BEKK framework we identify high but volatile correlations with recurring highs around 0.8 and multiple periods of decoupling. OPEC meetings increase the correlation in the short run. Secondly, linear ℓ1-trends reveal that long-term movements of WTI and Brent are driven by the same dynamics, confirming the ‘one great pool’ hypothesis. OPEC meetings have only little impact on long-term price trends. Thirdly, we find leading effects of WTI over Brent by short-term trends of several days, especially in a negative direction. These trends have an asymmetrical effect on volatility; negative trends cause a stronger increase than positive trends. These findings are of interest to policy makers as well as hedging strategies of crude oil portfolios and provide insight into long-term movements of crude prices.

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DO - 10.1016/j.eneco.2018.09.013

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VL - 75

SP - 636

EP - 646

JO - Energy Economics

JF - Energy Economics

ER -

Trends and Contagion in WTI and Brent Crude Oil Spot and Futures Markets - The Role of OPEC in the last Decade

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