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Market microstructure factors in the determination of oil prices

Author

Listed:
  • Carlos González Pedraz
  • María Teresa González Pérez

Abstract

On 20 April 2020 the West Texas Intermediate (WTI) oil futures price for May delivery turned negative for the first time in history. Other crude prices also posted very low values and their volatility soared, far more than that on stock markets. This article analyses the differences between the spot and futures markets for crude, demonstrating the key role they played in the source and subsequent correction of this event, which affected above all WTI contracts more than Brent. The article also highlights the increasingly significant presence of oil exchange-traded funds (ETFs) and their growing use as a retail investment instrument.

Suggested Citation

  • Carlos González Pedraz & María Teresa González Pérez, 2020. "Market microstructure factors in the determination of oil prices," Economic Bulletin, Banco de España, issue 3/2020.
    • Handle: RePEc:bde:journl:y:2020:i:09:d:aa:n:21
    Note: Analytical Articles
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    File URL: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRevistas/ArticulosAnaliticos/20/T3/descargar/Files/be2003-art21e.pdf
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    More about this item

    Keywords

    oil prices; COVID-19; volatility; ETFs; futures; spot prices.;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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