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Indexing Oil from a Financial Point of View: A Comparison between Brent and West Texas Intermediate

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  • Cem Berk

    (Department of Accounting Information Systems, School of Applied Sciences, Istanbul Arel University, Turkey)

Abstract

Brent crude and West Texas intermediate (WTI) are major indices for purchases of oil worldwide among with some others such as OPEC basket. Brent is traditionally a European index whereas WTI representing slightly sweeter and lighter crude is more applicable in USA. Until 2010, the spread between WTI and Brent hasn t been more than few dollars. However in recent years, the spread is widening in favor of Brent and then returning to the mean. WTI which historically taken over Brent, has fallen below Brent which is now claimed to be the global oil index for the World. This is sometimes argued with the Shale production and over-supply in the U.S. and several macroeconomic events such as Libyan crisis. The aim of this paper is to analyze which of these indices is a better indicator for the energy industry. The variables from NYSE exchange traded funds namely energy select sector SPDR ETF (XLE), Teucrium WTI crude oil ETF (CRUD), and United States Brent oil ETF (BNO) for the period December 1994 and September 2014. The variables are analyzed for long-run and short-run relationships with unit root tests, vector autoregression models, and vector error correction models as well as cointegration and Granger causality tests.

Suggested Citation

  • Cem Berk, 2016. "Indexing Oil from a Financial Point of View: A Comparison between Brent and West Texas Intermediate," International Journal of Energy Economics and Policy, Econjournals, vol. 6(2), pages 152-158.
    • Handle: RePEc:eco:journ2:2016-02-2
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    Cited by:

    1. Bravo Caro, José Manuel & Golpe, Antonio A. & Iglesias, Jesús & Vides, José Carlos, 2020. "A new way of measuring the WTI – Brent spread. Globalization, shock persistence and common trends," Energy Economics, Elsevier, vol. 85(C).

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    More about this item

    Keywords

    Energy Modeling; Oil Indexing; Cointegration; Granger Causality;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade

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