Brent Crude

About: Brent Crude is a research topic. Over the lifetime, 548 publications have been published within this topic receiving 9879 citations.

From Oil to Stock Markets

Abstract: This study investigates the impacts of crude oil price variations on the French and American stock market returns using daily observations of Brent crude oil prices, the CAC40, and the Dow Jones Industrial Average indexes for the period of 1999~2012. Our results show strong evidence of fractional cointegration between oil and stock market indices, suggesting the presence of a relationship that governs their long-run joint movements. We find that dynamic correlations increase dramatically during crisis periods, but they move towards their initial levels after those periods. The effect of the lower oil price on the development of the global economy depends not only on whether the low price is expected to be temporary or persistent but also on the causes of the oil price fall. Market analysis shows that the new price levels of oil are caused by the simple mechanism of supply and demand. The low price of oil in 2014 is caused by reduced oil demand because of the slower economic growth in Chinese economy and the impact of developed world’s drive to reduce carbon emissions on the oil market. Given the country-specific dynamic links between oil and stock markets, policymakers may make appropriate policies to reduce the impact of adverse oil price effects on production and economic activities, while investors can optimally design their diversification and hedging strategies, considering oil price persistence patterns.

Models with Short-Term Variations and Long-Term Dynamics in Risk Management of Commodity Derivatives

Abstract: We adopt Schwartz and Smith’s model (2000) to calculate risk measures of Brent oil futures contracts and light sweet crude oil (WTI) futures contracts and Mirantes, Poblacion and Serna’s model (2012) to calculate risk measures of natural gas futures contracts, gasoil futures contracts, heating oil futures contracts, RBOB gasoline futures contracts, PJM western hub peak and off-peak electricity futures contracts. We show that the models present well goodness of fit and explain two stylized facts of the data: the Samuelson effect and the seasonality effect. Our backtesting results demonstrate that the models provide satisfactory risk measures for listed energy commodity futures contracts. A simple estimation method possessing quick convergence is developed.

The impact of commodity benchmarks on derivatives markets: The case of the dated brent assessment and Brent Futures

Abstract: We examine the response of ICE Brent Crude futures to the spot Dated Brent benchmark published by Platts. Trading activity in the futures market intensifies during the benchmark assessment. We also find trading in the direction of the published benchmark during the price assessment window. Aligned positions and a substantially increased arrival rate of informed traders suggest that sophisticated traders, taking advantage of a rise in uninformed trading activity, induce the price run-up in Brent futures, ahead of the Dated Brent assessment end. The general increase in the arrival rate of both informed and uninformed traders during the assessment window underlines the benchmark's relevance and its potential for attracting liquidity. Our results are robust to alternative specifications and underscore the significance of physical commodity benchmarks as critical elements of the financial market infrastructure.

Crude Oil Price Shocks and Stock Returns: Evidence from Turkish Stock Market under Global Liquidity Conditions

Abstract: The purpose of this study is to investigate the impacts of crude oil price variations on the Turkish stock market returns. We have employed vector autoregression (VAR) model using daily observations of Brent crude oil prices and Istanbul Stock Exchange National Index (ISE-100) returns for the period between January 2, 1990 and November 1, 2011. We have also tested the relationship between oil prices and stock market returns under global liquidity conditions by incorporating a liquidity proxy variable, Chicago Board of Exchange’s (CBOE) S&P 500 market volatility index (VIX), into the model. Variance decomposition test results suggest little empirical evidence that crude oil price shocks have been rationally evaluated in the Turkish stock market. Rather, it was global liquidity conditions that were found to account for the greatest amount of variation in stock market returns.

Threshold Cointegration in BRENT crude futures market

Abstract: This paper, using a threshold vector error-correction (TVECM) model, examines whether BRENT crude spot and futures oil prices are cointegrated. By employing this methodology we are able to evaluate the degree and dynamics of transaction costs resulting from various market imperfections. TVECM model is applied on daily spot and futures oil prices covering the period 1990-2009. The hypothesis we test is to what extent BRENT crude is indeed an integrated oil market in terms of threshold effects and adjustment costs. Our findings support that market follows a gradual integration path. We find that BRENT crude spot and futures are cointegrated, though two regimes are clearly identified. This implies that a threshold exists and it is indeed significant. Adjustment costs in the error correction are present, and they are valid at the typical regime that is the dominant, and as a result should not be ignored.