Oil and Methanol Price volatility

Abstract

Crude oil as one of the main sources of energy is also the main source of income for members of OPEC. So, the volatility of crude oil price is one of the main economic variables in the world and analysis of the effect of its changes on key economic factors has been always considered as significant. The reason might be the high sensitivity of oil price to political, economic and cultural issues worldwide and consequently its volatility on the one hand, and the high influence of the volatile prices on macroeconomic variables. On the other hand, for different reasons such as oil price volatilities and income from oil export, economic planners and policy makers in Iran have been mainly focused on the promotion of non-oil exports especially during the last few decades. Therefore, methanol as one of the most commonly used petrochemical products has a high potential for production and export of non-oil products in Iran. For this reason, in the present study there was an attempt to examine the relationship between the prices of Iran’s crude oil and methanol using FIGARCH model and based on the weekly time series data related to the research variables. The results of the study showed that the long memory parameter is equal to 0.32 which is meaning the shocks caused by volatility of methanol market and crude oil price to the methanol price were lasting and meaningful and were revealed in the long term.