International Crude Oil Market Research Articles

Environmentally clean and dirty energy equities during extraordinary global conditions

I examine which extraordinary international events coincide with pronounced changes in the equity markets for some of the world’s largest publicly traded suppliers on opposite sides of the global energy mix — oil and environmentally clean energy companies. First, I adapt an intuitively appealing non-parametric filter to empirically timestamp unexpected and prominent increases and decreases in a wide range of global indicators relevant to the international energy market. Then, I use such extraordinary conditions to characterise the performance of oil and environmentally clean energy equities, and their relationships. My findings suggest that jumps in the global stock market, international crude oil market shocks, and the US dollar real effective exchange rate, are the indicators that define the financial landscape during which considerable gains, losses, and instability across both types of energy markets materialise. In contrast, major elevated uncertainties related to geo-political risk and climate policy reflect relative stability in the equities of both oil and environmentally clean energy companies. Although these results imply that both energy assets are potentially lucrative hedging strategies for investors to exploit during heightened geo-political and climate policy uncertainties, clean energy equities offer market participants the option to combine profit maximising and sustainability objectives while minimising global energy security risks.

Estimating Spillover Effect from International Oil Market to Stock Market: Evidence from Korean Portfolio-Level Analysis

Using a diagonal BEKK model, this paper estimates a spillover effect from the international crude oil market to the Korean stock market. Empirical results suggest that shocks and volatility in Dubai oil prices are significantly transmitted into twenty portfolios of the Korean stock market. Also, it was found that these spillover effects dramatically rose during the year 2020, when the threat of COVID-19 was the most serious. More specifically, oil-oriented portfolios, such as the power and gas firms’ portfolio and chemical firms’ portfolio, had a greater spillover effect from the international crude oil market rather than other portfolios. Further, compared to larger-capitalization firm portfolios, small-capitalization firm portfolios had a relatively greater spillover effect. Several implications and important avenues for further research are identified.

Nonlinear impact of climate transition risks on green stock performance: Perspectives from multiscale and lag effects

This study presents a novel examination of how climate transition risks, temperature variances, and the international crude oil market influence green stock performance in China. Utilizing signal decomposition and distributed lag nonlinear regression models on data from July 29, 2015, to June 30, 2022, we uncover a unique nonlinear and time-lagged relationship between climate risks and green stock returns. Our findings reveal that green stocks respond differently to climate and oil price changes under various market conditions, with long-term trends more affected than short-term movements. This highlights the critical role of temporal factors in financial analyses of climate-related risks and suggests that climate policies and market dynamics significantly shape investment and corporate strategies over time. The study offers fresh insights into green stock dynamics, stressing the need for nuanced understanding in financial decision-making amidst climate change and market volatility.

Identifying dynamic risk spillovers between crude oil and downstream industries: China's futures market perspective.

Interactions between crude oil and its downstream products are crucial but complex. The main purpose of this study is to examine the risk spillover relationships between the crude oil futures market and the petrochemical downstream futures market in the context of the COVID-19 epidemic in China. By combining the dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity (DCC-GARCH) model and the Diebold-Yilmaz spillover index based on time-varying parameter-vector autoregression (TVP-VAR-DY), we investigate the dynamic correlations between Shanghai crude oil futures (INE) and the downstream futures in China's petrochemical industry chain. At the same time, we also incorporate the representative global crude oil futures (BRENT and WTI) in our study as a comparative analysis. Our results show a significant positive correlation between three crude oil futures and China's downstream future products, with a more pronounced link observed between INE and the downstream futures market. Moreover, the correlation between crude oil futures and various downstream products exhibits heterogeneity; that is, direct derivatives of crude oil show higher sensitivity to price fluctuations compared to products with longer production chains. Furthermore, the spillover results indicate that the international crude oil futures, particularly BRENT, primarily function as spillover transmitters, while INE mainly serves as the recipient. In the post-pandemic period, the international crude oil market still exhibits a high spillover effect, and the spillover effect of INE to polyvinyl chloride, pure terephthalic acid, and bitumen futures increased, reflecting market recovery in China to some extent. These results provide potential insights for policymakers, financial institutions, industry participants, and investors, emphasizing the importance of enhanced risk management, diversified investment strategies, and attention to market dynamics.

Price discovery of the Chinese crude oil options and futures markets

China's crude oil derivatives market has attracted extensive attention since its futures contracts were officially listed in 2018. This study examines the price discovery ability between Shanghai's crude oil options market and the corresponding futures market. Results show that futures lead options and the intraday distribution of options information share has a ‘w’ shape. Intraday seasonality of futures volume and the international crude oil market have significant impacts on the price discovery process. This study is the first empirical analysis of Shanghai crude oil options in terms of price discovery and presents novel insights into China's crude oil derivatives market.

Risk Management Case Analysis of ICBC's "Crude Oil Treasure" Incident

Driven by the marketization of interest rates and technological innovation, commercial banks in China continue to innovate various financial services businesses and devote more attention to attracting customers to purchase various investment and wealth management products in order to expand sources of bank performance and gain more benefits. In 2018, paper crude oil-linked wealth management products emerged. Paper crude oil products are linked to the prices of international crude oil futures contracts. The products feature controllable risks and relatively high returns, which are very popular among large numbers of customers. However, despite the continuous expansion of China's financial derivatives trading volume, the categories of derivative products and regulation still have many limitations. The development of innovative paper crude oil-linked products is not perfect and has many potential risks, which are highly susceptible to market fluctuations. Taking China Bank's "Crude Oil Treasure" product as the research focus, this paper analyzes the massive loss incident that occurred in late April 2020 through case study analysis and qualitative analysis methods. It is divided into four parts. The introduction part explains the research background, significance, content, methods and innovations and inadequacies of this paper. The first part sorts out the background and process of the "Crude Oil Treasure" case at China Bank and elaborates on the operating principles of this product. The second part analyzes the "Crude Oil Treasure" case in detail. It first focuses on the problems in the product's trading liquidity, domestic and international time differences and product promotion. Then it focuses on the internal and external causes of the case, discussing external factors such as international crude oil market turmoil and futures trading characteristics, and internal factors such as product design, risk control and lack of experience. It also evaluates the hedging strategy, contract design and compliance of the "Crude Oil Treasure" product. The third part mainly analyzes the impacts of the "Crude Oil Treasure" rollover incident and China Bank's subsequent response measures. The fourth part puts forward certain countermeasures and suggestions from the perspectives of bank management, investors and regulatory agencies to prevent such incidents from recurring based on the case analysis.

The dynamic impact mechanism of China's financial conditions on real economy and international crude oil market

As financial conditions become more complex and variable, capturing economic patterns becomes harder. The Financial Conditions Index (FCI) has gained traction as a tool to assess the performance of financial markets in nations or regions. This paragraph has created the China FCI using various financial indicators from 2002 to 2022. And with the use of statistical models like DMA-TVP-FAVAR, mixed-frequency Granger causality test, TVP-SV-VAR, and MS-VAR to analyze the relationship between China's financial condition, real economy, and the crude oil market. Different impacts were observed over time and in response to economic shocks, Results show that the fluctuation of international oil price has a negative impact on our financial condition. Therefore, the government should consider the impact of external shock factors such as international crude oil price when formulating financial policies to prevent financial risks.

Analysis and Suggestions on Crude Oil Treasure Event

Since the global COVID-19 has broken out, the international crude oil market has been turbulent and crude oil prices have hit new lows. In April 2020, the Bank of China (BOC) "Crude Oil Treasure" May 2020 contract product caused 9 billion losses. The paper dis-cusses the case of BOC s Crude Oil Treasure and it is divided into the following three parts. First, we sort out the background and process of the BOC s "Crude Oil Treasure" and expound the operation principles of the product. Furthermore, we analyze in detail the reasons why the failure occurred. At first, we summarize the external factors under the background of the COVID-19. Then, we discuss the internal reasons for the occurrence of cross-position events. From two perspectives of product design and risk control, we try to analyze the inadequacies of Bank of China in this case. Finally, we combine the above-mentioned reason analysis and give suggestions on how to prevent such incidents from happening again from both the perspectives of both banks and investors.

Study on international energy market and geopolitical risk contagion based on complex network

At present, the global political and economic situation is changing with geopolitical risks occurring frequently, and the commodity market represented by energy fluctuates violently. In order to deeply investigate the risk contagion status and interactive contagion mechanism between international energy market and geopolitics under the impact of extreme events, this paper selects crude oil spot prices and geopolitical risk index of major international oil-producing countries from January 2006 to December 2021, and analyzes the tail risk cross-contagion effects, dynamic effects and cyclical characteristics between international energy-geopolitics two-layer networks based on complex networks. Empirical research finds that risk spillover effect of traditional energy markets is more significant than that of clean energy markets. Russia acts as the main risk spillover of international crude oil market under extreme shocks, and geopolitical conflicts will exacerbate risk contagion between international energy markets. The analysis of energy-geopolitics two-layer network finds that the international energy market generates net risk spillover effect on geopolitics. In addition, the interconnectedness network study found that the United States, Russia and China are systemically important economies in the energy market under the complex geopolitical landscape. The risk contagion effect among systemically important economies finds that Russia's geopolitical risks have stronger impact on China's crude oil price. The cycle characteristics analysis of international crude oil market and geopolitical dynamic network finds that the short-term risk contagion effect is more obvious. The machine learning analysis found that the international crude oil-geopolitical connectedness can effectively warn the tail risk of the crude oil market, which provides basis for preventing cross-contagion risks from the perspective of system connectedness.

Dynamic comovement and extreme risk spillovers between international crude oil and China's non-ferrous metal futures market

This paper analyses the dynamic comovement and extreme risk spillovers between international crude oil and China's non-ferrous metals futures by combining the application of Copula and CoVaR models, considering the effects of structural breaks and the frequency of cycles. The results show a positive linkage between crude oil and China's non-ferrous metals, with significant long-period comovement. Upside risk in crude oil prices can generate stronger extreme shocks to non-ferrous metals, as evidenced by the outbreak of COVID-19 in 2020. Compared to zinc and aluminum, copper is more susceptible to risk spillovers from crude oil, particularly in the event of a downside trend in crude oil. In addition, WTI crude oil and Brent crude oil show some variability in the upper and lower tail spillover effects. Our research explained to some extent the time-varying, cyclical and asymmetric impact on the non-ferrous metal futures market under crude oil shocks, which can be informative for industry planners, regulators, and investors in making targeted decisions. It is mainly the case when dealing with the many effects of geopolitical conflicts, trade frictions, and commodity supply and demand mismatches.

Dynamic spillover effects among international crude oil markets from the time-frequency perspective

This research takes seven representative crude oil markets in the world, decomposes and reconstructs the yield series by CEEMDAN and Fine-to-coarse algorithm, and measures the markets’ risk level by applying the DCC-GARCH-CoVaR model. We further construct a network spillover model based on TVP-VAR to investigate the return spillover and risk spillover effects among these oil markets in different time scales. The empirical results are as follows. (1) Integration within the international crude oil market is deepening, and return spillover and risk spillover are at high levels. (2) In the short run, Brent, Tapis, and Bonny crude oil markets are the main net exporters of return spillovers, while in the long run, Brent, WTI, and Dubai crude oil markets are global crude oil price benchmarks. (3) The risk level of each crude oil market under the full sample and high-frequency perspective is generally consistent, and the dynamic spillover effects between markets are relatively close, while the Brent and Tapis crude oil markets are the main net exporters of risk spillovers from the low-frequency perspective. (4) The impact of the same event on the spillover effect is heterogeneous in different time scales. For example, the spread of the COVID-19 epidemic in 2020 and the break-up of the “OPEC +” crude oil negotiations reduced the risk spillover level in the short term, but increased the risk spillover level in the long term.

The effect of US economic policy uncertainty on market risk of international crude oil and the portfolio strategy

The paper investigates the impact of US economic policy uncertainty (EPU) on major crude oil markets. GARCH-tDDC-Copula model is constructed to study the spillover effect of US EPU on the international crude oil market risk, and then the median-CoVaR portfolio model is constructed to discuss the optimal portfolio strategy of crude oil importers when US EPU is in different states. Results show that the spillover effect of US EPU on international crude oil market risk is nonlinear, asymmetric and time-varying. When US EPU increases from the average level to the 0.95 quantile level, the price reduction risk of crude oil market in Brent, Dubai and Western Texas increases by 37.26%, 42.66%, and 39.28% respectively, and the price increase risk increases by 7.22%, 6.64%, and 7.53% respectively. Compared with the median-VaR portfolio strategy and the equal-weight combination portfolio strategy, the advantage of the median-CoVaR model is that it can achieve ‘targeted’ management for asset risk under specific conditions. When US EPU peak occurs, crude oil importers can formulate a basket price strategies with dynamic weighted based on the median-CoVaR model, which can better reduce the depreciation risk of crude oil assets. The findings have important implications for importers and investors.

The Impact of Crude Oil Price Shocks on Bitcoin under the Russian–Ukrainian War

Nowadays, the Russian-Ukrainian war has been a hotly topic, and the war has shaken the global economy, especially in the international crude oil market. Also, as a popular financial instrument, the investors like to see Bitcoin as a hedging tool, but the problem of whether cryptocurrencies can hedge the volatility of commodity markets lacks a unified explanation. Therefore, the paper wants to find the relationship between Bitcoin and crude oil during the Russian-Ukrainian war. This paper uses data from Bitcoin, crude oil WTI futures, and crude oil Brent futures, and constructs the VAR model and ARMA-GARCH model based on these data. Ultimately, the article finds that the volatility of the international crude oil market only has little impact on Bitcoin. Thus, the investors do not need to worry about the high crude oil price caused by the war will affect Bitcoin’s yield and volatility, so Bitcoin seems like a great hedging instrument against the shock of the international crude oil market.

Dynamic risk resonance between crude oil and stock market by econophysics and machine learning

Changes in crude oil prices have a strong impact on global stock markets. As the largest importer of crude oil, China’s international crude oil market and stock market have a strong risk of contagion. It is of great significance to study the stochastic resonance effect between crude oil market and Chinese stock market. This paper proposes the dynamic risk resonance analysis method based on econophysics and machine learning. From the perspective of stochastic resonance in nonequilibrium statistical physics, we set up a new periodic capital asset pricing model based on econophysics and asset pricing theory, and introduce signal power amplification to describe the risk resonance effect of crude oil price and Chinese stock market. Then, we analyze the dynamic risk resonance between crude oil and stock market impacted by systemic risk and investor heterogeneity. The results demonstrate that: (1) Based on machine learning and predictive testing, the in-sample and out-of-sample forecasting results show that the proposed new periodic model has better fitting performance than the benchmark model; (2) There are optimal system parameters and period information to minimize the risk resonance effect between two markets; (3) The existence of optimal investor heterogeneity leads to inverse resonance behavior between the two markets, which greatly reduces the contagion of market risks.

Spillover effect of crude oil futures market: An empirical research from emerging market

The world crude oil market is an important place for investors to engage in international financial investment activities, which profoundly impacts the economic activities of all countries. This paper aims to provide empirical support for the decision-making behavior of cross-border enterprises, international investors, and government regulatory authorities. This paper constructs a risk spillover effect measurement model based on the GARCH-CoVaR model. Firstly, the GARCH model fits the logarithmic rate of return of RMB and crude oil price data. Secondly, Copula is used to estimate its joint distribution. Finally, the risk spillover effect is calculated by the Covar model. We selected the emerging market (Shanghai crude oil futures market) as the research object. The research found that the Shanghai crude oil futures market has a significant inverse volatility spillover to the onshore exchange rate market and a two-way positive volatility spillover to the offshore exchange rate market; Then, we conducted a robustness analysis and found that there is a significant two-way risk spillover among offshore exchange rate market and international crude oil market, and there is a downward risk spillover among international crude oil market and onshore exchange rate market.

Tail Dependency and Risk Spillover between Oil Market and Chinese Sectoral Stock Markets—An Assessment of the 2013 Refined Oil Pricing Reform

The Chinese refined oil pricing reform in 2013 has brought its refined oil price to be more aligned with the international oil price, helping to mitigate prior distorted pricing mechanisms. Its impact on the correlation, tail risks, and spillover effects between the international crude oil market and Chinese sectoral stock markets warrants empirical assessments. Time-varying copula models and conditional VaR (CoVaR) are employed to examine the correlation between the international oil market and Chinese sectoral stock indexes before and after the 2013 pricing reform, as well as the tail risk and spillover effects of the extreme and moderate oil markets. The results show that: (1) the correlation between the oil market and all 11 Chinese stock sectors is positive both before and after the reform, but the correlation is weaker after the reform than before; (2) The downside tail risk of the extreme and moderate oil markets to most Chinese stock market sectors, and the upside tail risk of the moderate oil market to most stock sectors are lower after the reform; (3) Tail risk spillover effects of extreme oil market on all sectors exist before and after the reform; (4) The upside tail risk spillover effects of moderate oil market exist in most sectors before the reform, but they almost all disappear after the reform. The downside risk spillover effects of the moderate oil market do not exist before or after the reform. The findings provide valuable references for portfolio management and future policy update.

Dependence structure between the international crude oil market and the European markets of biodiesel and rapeseed oil

Being an environmentally friendly fuel obtained from rapeseed oil, biodiesel is used extensively in Europe. However, the dependence structure between global crude oil prices and the European prices of biodiesel and rapeseed oil is understudied and unclear. In this paper, we address this gap by utilizing asymmetric copulas and cross-quantilogram approaches on daily data. The results of the DCC-Student-t copula indicate that during bearish periods the conditional connectedness between crude oil prices and biodiesel (rapeseed oil) prices are stronger than during bullish periods, indicating increased co-movement with a decline in crude oil prices. The application of cross-quantilogram indicates that an increase in crude oil price positively influences biodiesel prices reflecting an asymmetric dependence structure among the assets. There is evidence of shifts in the dynamics of quantile dependency during periods of financial and economic turmoil. Overall, the results show a significant dependence between the global crude oil market and the European markets of biodiesel and rapeseed oil in specific periods and under specific market conditions, which have important implications for policymakers and investors.

ANALYSIS OF INTERNATIONAL OIL PRODUCTION COMPETITON USING GAME THEORY

Uluslararası ham petrol piyasasında oyuncuların OPEC (Petrol İhraç Eden Ülkeler Örgütü) üye ülkeleri ile OPEC’e üye olmayan petrol üreten ülkeler (non-OPEC) oldukları varsayımı yaygındır. Söz konusu oyuncuların kâr maksimizasyonu ve/veya petrol piyasalarını kontrol edebilme hedefiyle üretim seviyesi ve fiyat gibi çeşitli strateji kümeleri kullanarak rekabet eğilimine girmeleri söz konusu piyasanın oyun modelleri ile analiz edilebilirliğini ortaya koymaktadır. Bu çalışmanın amacı, OPEC ve non-OPEC ülkelerinin rekabete dayalı petrol üretim miktarlarını oyun teorisi temelinde analiz etmektir. Bu amaç doğrultusunda, oyunculara ait 1972-2019 dönemini kapsayan üretim miktarları ve ham petrol fiyat serileri kullanılmıştır. Petrol piyasalarındaki rekabetin varlığına işaret eden üretim fonksiyonlarına ait katsayılar Tam Bilgi En Küçük Kareler (FMOLS- Fully Modified Ordinary Least Square) yöntemi ile tahmin edilmiştir. Elde edilen modellerden Cournot-Nash ve Stackelberg denge çözümleri hesaplanmıştır. Cournot-Nash denge düzeyine göre Stackelberg denge düzeylerinde lider oyuncunun üretiminin artığı, takipçi oyuncunun üretim düzeyinin ise azaldığı görülmüştür. Bulgular Cournot-Nash denge çıktılarının Stackelberg denge çıktılarından daha yüksek olduğu çalışmalar ile paralellik göstermiştir. Oyuncuların üretim miktarı ve fiyat stratejileri vasıtasıyla optimum üretim düzeyine ulaşmaları için Cournot-Nash dengesinde kalmaları önerilmektedir.

Price discovery efficiency of China's crude oil futures: Evidence from the Shanghai crude oil futures market

This study investigates the pricing efficiency of the Shanghai Crude Oil Futures (SC) as a newly emerged crude oil future market from the perspective of co-integration and estimates its contribution to price discovery in China based on the vector error correction model (VECM), permanent–transitory (PT), information share (IS), and modified information share (MIS) models. All results show a long-run equilibrium relationship exists between crude oil futures and spot prices in China, but SC contributes just approximately 50% to price discovery, which is roughly equal to that of the spot market. Compared with West Texas Intermediate (WTI) and Brent crude oil markets, the pricing efficiency of SC lags significantly, which means that SC has a certain capability of price discovery, although it is now still in its initial development stage as the price taker of the international crude oil market.

Spillover of international crude oil prices on China's refined oil wholesale prices and price forecasting: Daily-frequency data of private enterprises and local refineries

Compared with retail prices of state-owned companies used in almost all existing studies, China's refined oil wholesale prices of private enterprises and local refineries are more affected by the market and better reflect the real supply-demand situation. For the first time, this paper applies own-monitored daily-frequency wholesale prices of China's private enterprises and local refineries during 2013–2020 to derive spillover effects of international crude oil prices on China's refined oil prices through the VAR-BEKK-GARCH (vector autoregression-Baba, Engle, Kraft, and Kroner-generalized autoregressive conditional heteroscedasticity) model, and then tries to forecast wholesale prices through the PCA-BP (principal component analysis-back propagation) neural network model. Results show that international crude oil prices have significant mean spillover and volatility spillover effects on China's refined oil wholesale prices. Changes in crude oil prices are the Granger cause of changes in refined oil wholesale prices. With the improvement of China's oil-pricing mechanism in 2016, the volatility spillover from the international crude oil market to China's refined oil market gradually increases, and the BRENT price variation has an increasing impact on the refined oil wholesale price variation. The PCA-BP model could serve as a candidate tool for forecasting China's refined oil wholesale prices.