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Oil price volatility: An Econometric Analysis of the WTI Market

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  • Emmanuel Hache

    (IFPEN - IFP Energies nouvelles)

  • Frédéric Lantz

    (IFPEN - IFP Energies nouvelles)

Abstract

The aim of this paper is to study the oil price volatility in West Texas Intermediate (WTI) market in the US. By using statistical and econometric tools, we first attempt to identify the long-term relationship between WTI spot prices and the prices of futures contracts on the New York Mercantile Exchange (NYMEX). Subsequently we model the short-term dynamic between these two prices and this analysis points up several breaks. On this basis, a short term Markov Switching Vectorial Error Correction model (MS-VECM) with two distinct states (standard state and crisis state) has been estimated. Finally we introduce the volumes of transactions observed on the NYMEX for the WTI contracts and we estimate the influence of the non-commercial players. We conclude that the hypothesis of an influence of noncommercial players on the probability for being in the crisis state cannot be rejected. In addition, we show that the rise in liquidity of the first financial contracts, as measured by the volume of open interest, is a key element to understand the dynamics in market prices.

Suggested Citation

  • Emmanuel Hache & Frédéric Lantz, 2011. "Oil price volatility: An Econometric Analysis of the WTI Market," Working Papers hal-02472326, HAL.
    • Handle: RePEc:hal:wpaper:hal-02472326
    Note: View the original document on HAL open archive server: https://ifp.hal.science/hal-02472326
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    References listed on IDEAS

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    Cited by:

    1. Anthony Paris, 2016. "The Effect of Biofuels on the Link between Oil and Agricultural Commodity Prices: A Smooth Transition Cointegration Approach," EconomiX Working Papers 2016-5, University of Paris Nanterre, EconomiX.
    2. Dupoux, Marion, 2019. "The land use change time-accounting failure," Ecological Economics, Elsevier, vol. 164(C), pages 1-1.
    3. Emmanuel Hache, 2018. "Do renewable energies improve energy security in the long run?," International Economics, CEPII research center, issue 156, pages 127-135.
    4. Albert Banal-Estañol & Jeremy Eckhause & Olivier Massol, 2015. "Incentives for early adoption of carbon capture technology: further considerations from a European perspective," Working Papers hal-02475485, HAL.
    5. Vincent Brémond & Emmanuel Hache & Tovonony Razafindrabe, 2015. "On the link between oil price and exchange rate : A time-varying VAR parameter approach," Working Papers hal-03206684, HAL.

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