Abstract
Crude oil is the dominant energy resource worldwide. The focus of this paper is on its historical behaviour and subsequent implications for the global economy with an emphasis on the lead–lag relationship between spot and future prices. The paper examines the behaviour of oil spot and future prices and their determinants during periods of market uncertainty, particularly in the context of economic and financial crises. The analysis highlights a key controversy within the extant literature, as to whether spot or futures prices are the main crude oil price indicator. The literature review indicates that the lead–lag relationship is a dynamic one, especially during periods of sustained uncertainty, which leads to significant disagreements and incongruities among researchers regarding the price that plays a dominant role.
Highlights
This paper focuses on the analysis of crude oil future and spot prices with the aim of understanding what has been learnt regarding the lead–lag relationship between these oil prices during periods of significant uncertainty in the oil market
The aim of this literature review was to offer insights on the analysis of crude oil spot and futures prices when considering their lead–lag relationship, as this is an area of study subject to significant controversies and it highlights a lack of research during times of severe market uncertainty
Understanding spot and futures prices dynamics could help to offer insights into relationship dynamics during times of shocks that would be of help to major economic players when looking at the impact of oil prices on the functioning of their businesses and the economy as a whole
Summary
This paper focuses on the analysis of crude oil future and spot prices with the aim of understanding what has been learnt regarding the lead–lag relationship between these oil prices during periods of significant uncertainty in the oil market. Oil prices have been subject to significant levels of variability that have been translated into numerous price hikes and significant drops over the years This is a situation that calls for an evaluation of existing research in the field to understand what the major contributions are, and in particular, to look at how periods of severe uncertainty have been considered by researchers, and the kind of outcomes that have been reported regarding oil prices dynamics. This type of study is significant, as around periods of crises the dynamics between crude oil spot and futures prices can be affected considerably and bearing in mind that oil is still the major energy resource worldwide, its economic implications require further analysis and understanding.
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