IDEAS home Printed from https://ideas.repec.org/a/eee/transe/v40y2004i4p297-316.html
   My bibliography  Save this article

Cost of carry, causality and arbitrage between oil futures and tanker freight markets

Author

Listed:
  • Alizadeh, Amir H.
  • Nomikos, Nikos K.

Abstract

This paper investigates the dynamic relationship between oil futures and spot markets and tanker freight rates across two major tanker routes. In particular, we examine the validity of the cost of carry relationship in the WTI futures market, which suggests that the difference between physical and futures crude oil prices should reflect the transportation costs. We also examine whether the futures-physical oil differential contains information regarding tanker freight rate formation. Using physical crude oil prices for the Brent and Bonny markets, WTI futures prices and freight rates we find no evidence to support the existence of a relationship between tanker freight rates and physical-futures differentials in the crude oil market. This is mainly attributed to regional supply and demand imbalances and suggests that arbitrage opportunities between oil derivatives and tanker freight markets exist. Simulated trading strategies reveal the existence of excess profits, which are robust to variations in transaction costs, pipeline charges and timing of initiation of arbitrage.

Suggested Citation

  • Alizadeh, Amir H. & Nomikos, Nikos K., 2004. "Cost of carry, causality and arbitrage between oil futures and tanker freight markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(4), pages 297-316, July.
    • Handle: RePEc:eee:transe:v:40:y:2004:i:4:p:297-316
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1366554504000158
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    G13;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:transe:v:40:y:2004:i:4:p:297-316. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.