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

The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis
The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis
This study examines the globalisation-regionalisation hypothesis in the WTI/Brent crude oil futures price differential by considering a set of 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, 3-month and 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 6-month contracts, while the WTI/Brent trading volume spread lends predictive power for the 1-month and 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 over the short-run. Fifth, our robustness analysis lends support to the above findings. The findings of this study provide valuable information to energy investors, traders and hedgers.
Brent, convenience yield, globalisation-regionlisation hypothesis, oil futures differential, WTI
1755-3830
3-38
Filippidis, Michail
6720fe96-d184-4795-91f3-eb39abcee9a6
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Filis, George
0a11b1dc-f5e4-4384-8964-5b9c37dd29ef
Floros, Christos
c4c6c62c-8719-4688-b3d2-d46fd01581dc
Filippidis, Michail
6720fe96-d184-4795-91f3-eb39abcee9a6
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Filis, George
0a11b1dc-f5e4-4384-8964-5b9c37dd29ef
Floros, Christos
c4c6c62c-8719-4688-b3d2-d46fd01581dc

Filippidis, Michail, Kizys, Renatas, Filis, George and Floros, Christos (2019) The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis. International Journal of Banking, Accounting and Finance, 10 (1), 3-38. (doi:10.1504/IJBAAF.2019.099309).

Record type: Article

Abstract

This study examines the globalisation-regionalisation hypothesis in the WTI/Brent crude oil futures price differential by considering a set of 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, 3-month and 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 6-month contracts, while the WTI/Brent trading volume spread lends predictive power for the 1-month and 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 over the short-run. Fifth, our robustness analysis lends support to the above findings. The findings of this study provide valuable information to energy investors, traders and hedgers.

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KIZYS 2017 cright IJBAF The WTI-Brent oil futures price differential and the globalisation-regionalisation hypothesis - Accepted Manuscript
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Accepted/In Press date: 12 September 2017
e-pub ahead of print date: 16 April 2019
Keywords: Brent, convenience yield, globalisation-regionlisation hypothesis, oil futures differential, WTI

Identifiers

Local EPrints ID: 434406
URI: http://eprints.soton.ac.uk/id/eprint/434406
ISSN: 1755-3830
PURE UUID: c2599480-d8f7-4ce1-b848-eb08d057a3db
ORCID for Renatas Kizys: ORCID iD orcid.org/0000-0001-9104-1809

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Date deposited: 23 Sep 2019 16:30
Last modified: 28 Apr 2022 04:32

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Contributors

Author: Michail Filippidis
Author: Renatas Kizys ORCID iD
Author: George Filis
Author: Christos Floros

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