Crude Oil Price Dynamics Research Articles

Recent Dynamics of Crude Oil Prices

Recent Dynamics of Crude Oil Prices

Recent Dynamics of Crude Oil Prices

Crude oil prices have been on a run-up spree in recent years. Their dynamics were characterized by high volatility, high intensity jumps, and strong upward drift, indicating that oil markets were constantly out-of-equilibrium. An explanation of the oil price process in terms of the underlying fundamentals of oil markets and world economy was provided, viewing pressure on oil prices mainly as a result of rigid crude oil supply and an expanding world demand for crude oil. A change in the oil price process parameters would require a change in the underlying fundamentals. Market expectations, extracted from call and put option prices, anticipated no change, in the short term, in the underlying fundamentals. Markets expected oil prices to remain volatile and jumpy, and with higher probabilities, to rise, rather than fall, above the expected mean.

Modeling and forecasting cointegrated relationships among heavy oil and product prices

In this paper we investigate heavy crude oil and product price dynamics. We present a comparison among ten prices series of heavy crude oils and fourteen price series of petroleum products in two distinct areas (Europe and Americas) over the period 1994–2002. We provide a complete analysis of crude oil and product price dynamics using cointegration and error correction models (ECM). Subsequently we use the ECM specification to predict crude oil prices over the horizon January 2002–June 2002. Finally we compare the forecasting performance of ECM with a naïve model in first differences which does not exploit any cointegrating relation.

Power-law periodicity in the 2003–2004 crude oil price dynamics

In recent months, the crude oil market has shown an abnormal behavior as compared with the previous 20 years. The most relevant feature of it being the high-level prices, well beyond the most pessimistic forecasting of a couple of years ago. The aim of this paper is to show that the crude oil price dynamics in the period from mid-2003 to late-2004 can be described by a piecewise linear increasing trend plus an oscillatory behavior with power-law periodicity. In about mid-December 2003, a transition in the period of the price oscillations was detected. Before and after such a date, the oscillation period decreased and increased with time, respectively. Additionally, after July, 2004, the slope of the trend has suffered a 200% increment, which may indicate that the market instability is becoming stronger.

A multi-model approach for describing crude oil price dynamics

This paper develops a stochastic multi-model approach to describe the dynamics of crude oil prices. Based on the hypothesis that crude oil price dynamics reflects the activity of a competitive market with multiple equilibria, a mean-reversion multi-model incorporating two competitive processes with corresponding drifts and volatilities is investigated. Regimen-switching between the two standard stochastic processes is modeled as a simple process that describes extreme (e.g., social, political, etc.) events occurring scarcely but influencing on the market evolution.

Oil and Product Price Dynamics in International Petroleum Markets

In this paper we investigate crude oil and products price dynamics. We present a comparison among ten price series of crude oils and fourteen price series of petroleum products, considering four distinct market areas (Mediterranean, North Western Europe, Latin America and North America) over the period 1994-2002. We provide first a complete analysis of crude oil and product price dynamics using cointegration and error correction models. Subsequently we use the error correction specification to predict crude oil prices over the horizon January 2002-June 2002. The main findings of the paper can be summarized as follows: a) differences in quality are crucial to understand the behaviour of crudes; b) prices of crude oils whose physical characteristics are more similar to the marker show the following regularities: b1) they converge more rapidly to the long-run equilibrium; b2) there is an almost monotonic relation between Mean Absolute Percentage Error values and crude quality, measured by API gravity and sulphur concentration; c) the price of the marker is the driving variable of the crude price also in the short-run, irrespective of the specific geographical area and the quality of the crude under analysis.

The effect of uncertainty and aggregate investments on crude oil price dynamics : Tvedt, J. Energy Economics, 2002, 24, (6), 8

The effect of uncertainty and aggregate investments on crude oil price dynamics : Tvedt, J. Energy Economics, 2002, 24, (6), 8

The effect of uncertainty and aggregate investments on crude oil price dynamics

This paper is a study of the dynamics of the oil industry and we derive a mean reverting process for the crude oil price. Oil is supplied by a market leader, OPEC, and by an aggregate that represents non-OPEC producers. The non-OPEC producers take the oil price as given. The cost of non-OPEC producers depends on past investments. Shifts in these investments are influenced by costs of structural change in the construction industry. A drop in the oil price to below a given level triggers lower investments, but if the oil price reverts back to a high level investments may not immediately expand. In an uncertain oil demand environment cost of structural change creates a value of waiting to invest. This investment behaviour influences the oil price process.