Abstract
This study attempts to discover the nexus between crude oil price fluctuation after heavy oil upgrading and stock returns of petroleum companies in the U.S. Stock Exchange for the years 2008 to 2018. One of the methods of upgrading heavy crude oil is to extract asphaltene from crude oil. Considering the Asphaltene Removal (AR) as a factor in the nexus between oil price and the stock market is an innovation in the literature of energy finance. Asphaltenes cause many problems in the petroleum industry, which increases the cost of oil production and reduces the financial efficiency of oil companies. The AR is certainly one of the significant matters of the oil industry and can affect the price of oil. Therefore, changes in the price of oil can influence the price of oil company stocks. Hence, changes in stock prices will certainly affect the stock returns of oil companies. In an effort to solve this puzzle, the four financial models were employed to explore the nexus between oil price fluctuations and stock returns. The analysis of the results demonstrated that the oil price fluctuations caused by the removal of asphaltenes influence the stock returns of petroleum companies. Eventually, the theoretical hypothesis was confirmed by considering the USA as a case study. The outcomes of this investigation are a theoretical progression in areas related to the petroleum industry and the stock market that could lead to the adoption of new investment policies in the petroleum industry including investing in new procedures to manage and decrease the costs and time of the AR process, which would result in the advancement of petroleum companies. In fact, we have introduced a modern investment strategy in the oil industry aimed at reducing oil production costs, improving financial statements and increasing the stock returns of petroleum companies. Eventually, we will present new investment policies in the oil industry that can lead to economic growth and development of financial markets especially stock market, derivatives market, futures exchange, commodities exchange, as well as bond market.
Highlights
Crude oil is one of the most valuable commodities in the world
The theoretical hypothesis was confirmed by considering the USA as a case study. The outcomes of this investigation are a theoretical progression in areas related to the petroleum industry and the stock market that could lead to the adoption of new investment policies in the petroleum industry including investing in new procedures to manage and decrease the costs and time of the Asphaltene Removal (AR) process, which would result in the advancement of petroleum companies
Many scientific studies have looked at the effect of oil price variations on financial markets, stock exchange. (Hamilton 1983, 1996) was one of the first to show that oil price fluctuations have a substantial impact on the US financial system
Summary
Crude oil is one of the most valuable commodities in the world. Its price affects the financial markets and economic systems at each scale. Financial specialists believe that the forecasting the path of crude oil prices are extremely challenging since they are unstable and complex and rely on different conditions. Asphaltene, a very heavy fraction of crude oil, precipitation and deposit can occur at different stages during oil production (Safari et al 2017). Fluctuations in the price of oil are an essential and applied issue to research, which in turn may demonstrate the upcoming investments in the financial markets. It is generally acknowledged that variations in oil prices have a significant effect on the financial performance of numerous companies, very few empirical studies have been conducted to assess the sensitivity of stock prices of petroleum companies to fluctuations in oil prices after the AR.
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