Brent Crude Oil Research Articles

Consequences of the Russia-Ukraine war: evidence from DAX, ATX, and FTSEMIB

Purpose The Russian invasion of Ukraine generated unprecedented panic in the European financial system. As expected, the European Union (EU) felt most of the negative effects of the war due to geographical proximity to Ukraine and energy dependence on Russia. This study aims to investigate the influence of Brent crude oil (BCO), Dutch Title Transfer Facility Natural Gas, and CBOE Volatility Index (VIX) on Deutscher Aktien Index (DAX), Austrian Traded Index (ATX) and Milano Indice di Borsa (FTSEMIB). The German, Austrian and Italian equity indexes were chosen due to the heavy dependence of these countries on Russian gas and oil. Design/methodology/approach The data cover the period from November 24, 2021, to June 24, 2022, including five months of the Russia–Ukraine war. To generate the intended results, vector autoregressive, structural vector autoregressive, vector error correction model, Johansen test and Granger causality test were used. Findings The results highlight that natural gas and the VIX carried negative effects on DAX, ATX and FTSEMIB. The BCO was expected to have influenced three selected equity indexes, while the results suggest that it was priced only in ATX. Originality/value This research provides modest evidence for the policymakers on the systemic risk that Russian gas has for the EU equity markets. From a managerial perspective, changes in oil and gas prices are a permanently integral part of portfolio risk analysis.

Measuring price efficiency in petroleum markets: New insights using various long-range dependence techniques

This paper empirically measures pricing efficiency in the petroleum markets using a battery of long-range dependence techniques. We analyse the volatility (absolute returns) of fourteen petroleum products using daily prices from January 1990 to April 2020. We use bootstrapping techniques to estimate the confidence intervals of the long-range dependence parameters. Overall results obtained using CMA-MAF, CMA-MSF, GPH and periodogram techniques suggest that there is no evidence of long-range dependence in absolute returns of petroleum markets prices indices at least at the 10% level of significance. For robustness purposes, findings from the rolling windows estimates reveal that the results are not affected by the normality assumption under different rolling window sizes. Furthermore, we find that Gas oil, Biofuel and Heating oil are the most correctly priced while Crude Oil Dubai emerging is the least efficient. Comparing the efficiency index of the all six crude oil returns in our sample, WTI oil was seen to be less efficient than Brent crude oil. In all, our work uncovers crucial implications for investors and policymakers.

Nexus between commodities and banking sector financial soundness: The role of general macroeconomic setting in Ghana

The level of causation and interdependencies among three commodities (cocoa, gold, and Brent crude oil), five banking sector performance indicators (Capital Adequacy Ratio (CAR), Non-Performing Loans (NPL), Return on Equity (ROE), Return on Assets (ROA) and Core Liquid assets to total assets (CLATA)), and three general macroeconomic indicators (Inflation, Exchange rate and Global Economic Policy Uncertainty) are explored in this study. As a result, the wavelet techniques are employed to investigate time-frequency and frequency-dependent nexus in the Ghanaian context. In terms of time-frequency, a mix of negative and positive bi-causality among commodities, banking sector performance indicators, and macroeconomic indicators are found. Outcomes from the wavelet multipleprovide that these variables are highly integrated, with the exchange rate leading in the long-run. Hence, implying that exchange rate in Ghana has a high susceptibility to shocks before the other variables in the study. We advocate Government of Ghana and policy-makers should fine-tune policies that take into account the impact on other economic factors. Policies should be initiated to minimise fluctuations in the exchange rate. To limit the adverse impact of inflation and GEPU, it is required that effective and efficient country-level policies geared towards stability be initiated to resuscitate the economy.

Evaluation of the effectiveness of the Bank of Russia’s measures to ensure the stability of the stock market in the face of toughening sanctions

The study identifies the key features of the development of the Russian stock market in 2021 prior to the imposition of unprecedented sanctions against the Russian Federation by Western countries. The authors point out that the blow of sanctions caused chaos in the Russian stock market, which required the Bank of Russia to immediately take measures aimed at stabilizing the situation. Using the suitable mathematical apparatus, with the help of modern tools the authors evaluate the effectiveness of those measures. Based on the analysis of the interrelations between the quotations of TTF gas, PJSC Sberbank shares, PJSC Tatneft shares, MOEX index, Brent crude oil price, and the dollar exchange rate during three time periods, a conclusion is made that the measures implemented by the regulator in order to stabilize the situation in the Russian stock market were timely and effective.

The Effect of War Risks on the Petroleum and Petrochemical and Renewable Energy Industries: Evidence from Chinese Stock Market

This study explores the ramifications of war risks (Russo-Ukrainian Conflict specifically) on petroleum and renewable energy industries. Based on the stylized fact that war leads to spikes in oil prices, vector autoregressive (VAR) and autoregressive moving average-generalized autoregressive conditional heteroskedasticity (ARMA-GARCH) model analyses were conducted to evaluate stock return and volatility, respectively, in both sectors resulting from the change in Brent crude oil prices. The data in this study primarily encompasses Brent crude oil prices and the stock index for renewable energy and petroleum products in China. While the result of the VAR model analysis suggests that the increasing oil price has led to a positive effect on stock return for renewables and a trifling impact on stock return for petroleum products, the ARMA-GARCH model indicates that the change in Brent crude oil prices has exerted a negligible effect on stock volatility in both sectors. The positive stock return in the renewable energy sector caused by the increasing oil prices may incentivize more investors and promote the development of renewables in China. The government will also likely promulgate relevant policies to avert the risk of energy supply uncertainties and expedite the energy transition.

Forecasting volatility in oil returns using asymmetric GARCH models: evidence from Tanzania

Crude oil is, without a doubt, one of the most significant commodities in the modern world. The highly contagious coronavirus, the conflict between Ukraine and Russia, and not to mention the unusual turn of events worldwide have all significantly impacted crude oil prices. Since oil is required for all critical economic activities, such as production and transportation, a forecast for crude oil prices is essential. Using a range of GARCH models at such an intense time, this study attempted to close this gap by forecasting crude oil volatility. To forecast the returns of Brent crude oil prices from January 2002 to February 2022, this study uses a family of GARCH models. In the respective family of models, GJRGARCH (1,1) was the most effective in predicting the volatility of crude oil prices. The GJRGARCH model was chosen since it had a higher likelihood value and a lower information criteria value. A diagnostic check was done to evaluate the produced model further to ensure that the proposed model was good enough for forecasting crude oil volatility. The study suggests employing the GJRGARCH technique to predict future fluctuations in exceptional circumstances.

Alternative investments during turbulent times comparison of dynamic relationship

The coronavirus pandemic, like the Russian aggression on Ukraine, had a significant impact on many financial markets and asset prices. The latter additionally led to large fluctuations on financial markets. In this paper, we try to compare the performance of safe haven assets during turbulent times, such as the recent global financial crises, eurozone debt crises, the COVID-19 pandemic and the Russian aggression on Ukraine. We investigate the dynamic relationship between indices from the European countries like the Czech Republic, France, Germany, Great Britain, Poland, Slovakia, Spain, and popular instruments such as gold, silver, Brent Crude Oil, Crude Oil WTI, US Dollar, Swiss Franc, and Bitcoin. The study estimated the parameters of either DCC or CCC models, to compare the dynamic relation between the above-mentioned stock markets and financial instruments. The results showed that in most cases, the US Dollar and Swiss Franc were able to protect investors from stock market losses during turbulent times. In those periods, gold was the closest to being a safe haven instrument for investors from France, Poland, the Czech Republic and Slovakia. Our findings are in line with other literature which points out that safe haven instruments can change over time and across countries. In that literature, we can find research performed for the USA, China, Canada, and Great Britain, but there is no such research for Poland, Italy, the Czech Republic or Slovakia. The purpose of this paper is therefore to try to fill this research gap.

The Impact of COVID-19 on the Malaysia Stock Market: Finance Sector

Novel coronavirus outbreak since December 2019 has infected more than 1 million people to this day. The severe impact of the coronavirus has affected the world economy including Malaysia. Some countries have implemented lockdowns to contain the virus from spreading and this affected business heavily especially financial market. The dependent variables used in this research is the Kuala Lumpur Financial Index. The independent variables are the number of COVID-19 daily cases, the number of COVID-19 death, the volatility index and the Brent Crude Oil Price. The pandemic has affected the whole economy as the Brent crude oil has plummet below USD40 per barrel. Therefore, this paper will include Brent Crude oil price as the variable to identify the relationship between the stock market index. Investors’ concern on the COVID-19 cases and death has impact on the market. This paper will focus on the impact of COVID-19 virus on the finance sector in Malaysia. This sector mobilizes savings and allocated credit; thus, it has significant contribution in raising people’s standard of living. The sample period used in this study is from 1st January to 31st July 2020.

The long-run relationship between the prices of WTI and Brent crude oils – Periodogram based cointegration analyses

The purpose of this article is to investigate the presence of a cointegrating relationship between the prices of the two most important crude oil price benchmarks, which are West Texas Intermediate and Brent, for June 1987-July 2021. We use the periodogram-based methodology. Our finding suggests a global long-run relationship between two major crude oil prices for the 1987:06-2010:03 period until the Deepwater Horizon oil spill took place at the Macondo Field, located in the Gulf of Mexico. After this accident, the relationship breaks down. We also find statistically significant closely 12-month common periodicities in both series for the pre-oil spill accident. We conclude that the cointegrating relationship between the two oil prices maintained up to 2010:03. This finding provides a practical implication that these two crude oil prices cannot be used for hedging purposes after this date.

Dependence Analysis for the Energy Sector Based on Energy ETFs

This study investigates the effects of crude oil and natural gas future returns on energy stock portfolios. We consider returns of portfolios of energy companies approximated by energy ETFs and returns of Brent crude oil and natural gas contracts listed on the US market from January 2015 to September 2022. To study the relationship between Brent crude oil, natural gas, and ETFs, we apply Granger causality in mean and variance, Dynamic Conditional Correlation and the tail dependence-focused copula approach. The research hypothesis regarding the dependence between energy ETFs and the underlying energy risk factors—crude oil and natural gas, and therefore, the existence of hedging or diversification opportunities, was verified. Our empirical findings indicate that crude oil has a medium effect on energy ETFs, and for natural gas it is even lower in the analyzed period, so hedging opportunities are weak, but opportunities for diversification arise.

Effects of Crude Oil Price Shocks on Stock Markets and Currency Exchange Rates in the Context of Russia-Ukraine Conflict: Evidence from G7 Countries

The present study examines the effects of the steep surge in crude oil prices which has also been considered as an oil price shock on the stock price returns and currency exchange rates of G7 countries, namely Canada, France, Germany, Italy, Japan, the United Kingdom (UK) and the United States (US), in the context of the Russia–Ukraine conflict. Due to the outbreak of the war, the steep surge in Brent crude oil price returns is seen as an exogenous shock to stock price returns and exchange rates during the period from 2 January 2017 to 29 June 2022. The paper applies the Fractionally Integrated GARCH (FIGARCH) model to capture the effect of the crude oil price shock and the Breakpoint unit root test to examine the structural breaks in the dataset. Structural breakpoints in the dataset for the entire stock price returns and exchange rates are observed during the period commencing from the last week of February, 2022, to the last week of March, 2022. Except for TSX, NASDAQ and USD, noteworthy long memory effects running from Brent crude oil price to all the stock price returns along with the currency exchange rates for all G7 countries were also found.

Dynamic volatility contagion across the Baltic dry index, iron ore price and crude oil price under the COVID-19: A copula-VAR-BEKK-GARCH-X approach

The international dry bulk shipping market is closely related to the commodity and crude oil markets. At the same time, the Baltic Dry Index (BDI) is usually considered as the main indicator of economic activities. In order to clarify the correlations between the three markets, this paper employs the Copula-VAR-BEKK-GARCH-X model to explore the dynamic dependence and volatility spillovers between the Baltic Dry Index, iron ore price and Brent crude oil price. In addition, the influence of exogenous variables (BDI/Iron ore/Brent) on market volatility and co-volatility is further discussed. The empirical results indicate that: first, the dependence between BDI, iron ore price and Brent crude oil price is time-varying and time-lag, especially when suffering from major crises. Second, dynamic dependencies and volatility spillovers between BDI, iron ore price and Brent crude oil price have significantly strengthened during COVID-19, manifesting that the impact of market turmoil has reinforced the linkages between markets. Third, this paper reaffirms the role of BDI as an intra and inter market indicator, while finding indication that iron ore is beginning to emerge its predictive indicator post-COVID-19. The results are not only conducive to the investment portfolio selection of individual investors and institutional investors, but also beneficial to formulating trade policies or shipping strategies by countries or shipping organizations.

Impact of Paris Agreement on financing strategy: Evidence from global FPSO industry

This study explores the impact of the Paris Agreement on the determinants of firm-level capital structure decisions of listed contractor-owned Floating Production Storage and Offloading (FPSO) companies in the oil and gas (O&G) industry from 2000 to 2019. The study identified various financing structures between contractor-owned FPSO companies due to their individual and institutional characteristics. Tangibility, profitability, market-to-book (growth), size and effective tax rates are critical determinants of capital structure. Overall, the results support applying the pecking-order theory (PoT) from a firm-level and macro-economic context. The 2015 Paris Agreement ratification significantly impacted the capital structure determinants; the dynamic association has changed in the post-Paris period. Besides, the impact of the global financial crisis on leverage ratios was potentially mitigated by the upward trend in Brent crude oil price between 2007 and 2013.

Forecast of stock quotations of Sberbank PJSC using correlation and regression analysis

The scientific research, which consists in making a forecast regarding the stock quotes of Sberbank PJSC, is relevant because it reveals the prospects of the Russian financial sector. It allows investors to form a trading strategy for buying ordinary shares of Sberbank PJSC to generate income in the future. The purpose of the scientific article is to build an economic and mathematical model for forecasting quotations of ordinary shares of Sberbank PJSC. To achieve this goal, the theoretical foundations of the formation of monetary policy in Russia, the exchange rate of the Russian ruble, oil prices on the world market have been studied. The degree of influence of the above factors on the quotations of ordinary shares of Sberbank PJSC has been established. In the process of work, general and special scientific methods are involved: analysis, synthesis, monographic, statistical. The scientific novelty of the study consists in the construction of multiple and paired linear regression equations reflecting the dependence of quotations of ordinary shares of Sberbank PJSC on the M2 monetary aggregate in Russia, the key rate of the Central Bank of the Russian Federation, the USD/RUB currency pair, and Brent crude oil prices. Based on the equation of paired linear regression containing data on the M2 monetary aggregate in Russia, a forecast was made for the value of ordinary shares of Sberbank PJSC. In comparison with the trend of increasing money supply in Russia, ordinary shares of Sberbank PJSC look undervalued and attractive for investment.

Crude oil futures tail risk measurement based on extreme value theory

In this paper, we use three common tail risk measurements of Value-at-Risk (VaR), Expected Shortfall (ES) and Spectral Risk Measure (SRM) to calculate the tail risk of crude oil futures based on extreme value theory. Specifically, we propose a method to determine the optimal threshold in the extreme value theory, and further to calculate the values of VaR, ES and SRM based on Peak Over Threshold (POT) model. Empirical results show that the extreme value POT model can be used to characterise the tail risk of the price return under extreme fluctuations in Brent crude oil futures market. Moreover, the risk of VaR, ES and SRM in the Brent crude oil futures market based on extreme value theory is higher than that under the normal distribution assumption, which indicates that the traditional normal distribution assumption underestimates the tail risk. Owing the flexibility and the accuracy, we suggest that investors use ERM to measure the extreme risk of crude oil futures.

Mathematical Modeling of Sukuk

Data on sukuk issued so far shows that the majority of these have fixed coupon payments, which is equivalent to interest bearing fixed coupon bonds. Two mathematical models are reviewed that are proposed for risk-sharing and profit-sharing sukuk that is consistent with the principles of Islamic finance. The proposed sukuk are debt instrument – with stochastic coupons that depend on proxies for the profitability of the issuing firm. The first model is applicable to a sukuk with the issuer depending on a commodity like oil that has a transparent index for its price. An index-linked coupon bond, which is equivalent to a sukuk, pays coupons with values that are stochastic – depending on a market defined index – and has been proposed in Belal Ehsan Baaquie (2018a), Belal Ehsan Baaquie (2018b). The proposed model is studied by taking the index of the coupons to be based on the price of oil, given by Brent Crude Oil Index. In particular, a case study is reviewed by comparing fixed coupon bonds issued Petronas are compared with their corresponding sukuk with index-linked coupons Belal Ehsan Baaquie (2023). The second model is for sukuk issued by publicly listed firms; the coupons depend on the valuation of the issuing firm, which is taken to be a proxy of its profitability Belal Ehsan Baaquie (2020b), Belal Ehsan Baaquie (2020a). An empirical analysis of valuation based sukuk is reviewed to see its comparison with fixed coupon bonds Belal Ehsan Baaquie and Muhammad Mahmudul Karim (2022).

Crude Oil Price Forecasting Using Long Short-Term Memory and Support Vector Regression

Crude oil or petroleum is a non-renewable energy source derived from organic materials whose formation process is lengthy. Crude oil is a commodity whose prices often fluctuate. When there is a fluctuation, a nation's economy will be affected. The crude oil price datasets are categorized as non-linear. This research used two models to compare the performance of those two models to find the best model to predict Brent crude oil prices. The models used in this research are Long Short-Term Memory (LSTM) and Support Vector Regression (SVR). Those two methods are widely used for a similar case, such as forecasting the stock price. The dataset used in this study is the price of Brent crude oil from May 1987 to May 2022. The result of this study indicates that the deep learning algorithm, LSTM, performs better in forecasting the price of Brent crude oil with a root mean squared error value of 1.543.
 Index Terms—Crude Oil, Long Short-Term Memory (LSTM), Support Vector Regression (SVR), Deep Learning, Forecasting.

Analysing the rising oil price shock driven by Russia-Ukrainian tensions - effect on inflationary pressure in South Africa

Objective – The aim of this paper is to examine the relationship between the CPI, the brent crude oil price, and the PPI for final manufactured goods as well as the Rand/Dollar exchange rate during the past year. The study used South Africa as a proxy for developed countries. The objective is, therefore, to evaluate the effects of the increase in commodity prices on inflation and other macroeconomic variables. Methodology –The study utilised a quantitative methodological approach through the assessment of an econometric model that employed monthly data from January 2017 to May 2022. The paper utilized variables such as CPI, brent crude oil prices, PPI for final manufactured goods as well as the Rand/Dollar exchange rate. Findings – Short- and long-run relationships were established between the variables using the vector error correction model (VECM) and the Johansen co-integration equation methods. The long-run conclusions showed that high brent crude oil prices, high sunflower oil, a depreciating exchange rate and increasingly high PPI levels will lead to an increase in the CPI (Inflation). The results also indicated that oil prices still influence the basic prices of goods and services since all things need to be transported. Novelty – The results of the study showed that a perpetual international and national macro-economic environment is crucial to prevent inflationary pressures and price shocks, while volatile exchange rates unsteady PPI’s and significantly high oil and commodity prices causes cost-push inflation. Policy certainty and political stability is important to keep inflation stable and economic growth positive, which could lead to a more self-sufficient economy which are is reliant on political instability as an obstacle for positive future economic growth. Type of Paper: Empirical JEL Classification: E31, E37, E60, E63 Keywords: Russian-Ukrainian conflict, economic growth, Brent crude oil prices, PPI, CPI, exchange rates, sunflower oil. Reference to this paper should be made as follows: Neethling, J.R; Wyk, A.S.V. (2022). Analysing the rising oil price shock driven by Russia-Ukrainian tensions - effect on inflationary pressure in South Africa, J. Bus. Econ. Review, 7(3), 178–193. https://doi.org/10.35609/jber.2022.7.3(3)

Sukuk with Index-linked Coupons and Hedging: Case Study of Petronas

A sukuk (an Islamic debt instrument) is reasoned to be equivalent to an index-linked coupon bond that pays coupons with values that are stochastic — depending on a market defined index — has been proposed in Belal Ehsan Baaquie (2018a), Belal Ehsan Baaquie (2020). Oil is one of the most important commodities. The proposed model is studied by taking the index of the coupons to be based on the price of oil, given by Brent Crude Oil Index or WTI (West Texas Intermediate). In particular, a case study is carried out in which fixed coupon bonds issued Petronas are compared with a corresponding sukuk with index-linked coupons. A novel hedging procedure for the index-lined sukuk (coupon bond) can be defined using the underlying commodity on which the index is based: when the sukuk is issued a fixed quantum of the commodity can be allocated and ring-fenced for paying the coupons of the sukuk; the sale of this commodity provides the tangible asset that generates the revenue required for the future payments of the index-linked coupons for a wide variation of the index.

Analyzing the rising oil price shock driven by Russia-Ukrainian tensions - effect on inflationary pressure in South Africa

At the onset of 2022 the Russian Federation occupied Ukraine in a major intensification of the Russo-Ukrainian War that instigated in 2014. The result of the Russians invasion in Ukraine caused a major intensification in the inflationary levels and weakened global economic growth. As a result of the conflict the Brent Crude Oil prices increased from $92.98 per ounce on 24 February to $122.43 per ounce on the 8th of June 2022 which is an increase of 31.67 per cent in less than 4 months. The result of this invasion reformed the macroeconomic environment which fundamentally affected the international commodity markets and consequently leading to insufficient financial linkages between Russia and the rest of the World. The aim of this paper is to examine the relationship between the CPI, the brent crude oil price, the PPI for final manufactured good as well as the Rand/Dollar exchange rate. The study used South Africa as a proxy for developed countries. A quantitative methodology was used through the estimation of an econometric model by utilizing monthly time series data from January 2017 to May 2022. The CPI was chosen as the dependent variable while the independent variables included the PPI, sunflower oil, Rand/Dollar exchange rate and the brent crude oil. Short- and long-run relationships were established between the variables using the vector error correction model (VECM) and the Johansen co-integration equation methods. The long run conclusions showed that high brent crude oil prices, high sunflower oil, a depreciating exchange rate and increasingly high PPI levels will lead to an increase in the CPI (Inflation). In conclusion, the results of the study showed that a perpetual international and national macro-economic environment is crucial to prevent inflationary pressures and price shocks, while volatile exchange rates unsteady PPI's and significantly high oil and commodity prices causes cost-push inflation. Policy certainty and political stability is important to keep inflation stable and economic growth positive, which could lead to a more self-sufficient economy which are not reliant on political instability as an obstacle for positive future economic growth. Keywords: Russian-Ukrainian conflict, economic growth, Brent crude oil prices, PPI, CPI, exchange rates, sunflower oil.