Abstract
<p class="zhengwen">Investigate the causes of changing the oil price and modeling for predicting its volatility has always been one of the most important fields of Iran's economic literature study due to its position in Iran's economy. On the other hand, oil price volatility lead to the difficulty in the development programs. Empirical studies show that oil prices volatility are caused the structural bottlenecks (trade balance bottleneck, budget bottlenecks, etc.) in Iran's economic.<strong></strong></p>Understanding the mechanism of oil prices formation can reduce the risk of oil price volatility and its negative impacts on Iran's economy. With the development of oil bourse and oil futures market, oil market changed the crude oil price formation so that the cash flow between financial markets and oil market will deviant the crude oil price from its long term direction by changing in interest rate in short-term. In this paper, it is investigated the crude oil price deviation from its long-term direction with regard to the relationship between mentioned markets in short-term. For this purpose, Fisher price jump model and Frankel theory will be used for test by using daily time series data of 2005-13 about Iran's light crude oil in different areas (different markets), as well as multivariate GARCH technique method. Also, the results show that the pricing strategy is false signal in the use of Urals crude oil in the determining of crude oil price in the Mediterranean and North West Europe markets.
Highlights
Extreme volatility of oil prices was led the numerous disruptions in the world market of oil and in the world economy in the late twentieth century
As it was raised in the theoretical foundation about the behavior of crude oil price, with respect to the relations of financial markets with oil market can be said in short-term by changing in interest rate as a result of monetary policy in the money market for example tightening policy, the interest rate increases since in the bond market, bond price has inverse relationship with interest rate, the price increases and causes to increase demand for it
The results of empirical test for Iran's light crude oil in markets of East regions, the Mediterranean and North West Europe show that the relationship of mentioned crude oil and money markets is negative in studied regions and on the other hand the relationship between capital market and Iran's crude oil market is positive in its sale regions
Summary
Extreme volatility of oil prices was led the numerous disruptions in the world market of oil and in the world economy in the late twentieth century. This paper seeks to investigate the impact of financial markets on the behavior of Iran's light crude oil price in the market of East regions, North West Europe and Mediterranean. It can be considered the necessity and importance of the research in this that high share of oil revenues in GDP in Iran, as well as high dependence of government budget to oil revenues has been caused that any volatility in world prices of oil creates severe disorders in development plans and annual plans of the country, which in turn is led to structural bottleneck in the long term. In the first part of this article, the influencing channels of crude oil price, in the second part, the review of literature, in the third part, the theoretical foundations, in the fourth part, Iran's crude oil markets, in the fifth part, used techniques, in the sixth part, presenting variables and research findings and in the final part the research conclusion will be investigated
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