Global relationships across crude oil benchmarks

This paper empirically examines relationships and dynamics between the price of three crude oil benchmarks, namely the WTI, Brent, and Oman. Threshold cointegration is applied with findings that indicate a long run relationship exists between the pairs (WTI-Brent and WTI-Oman) of spatially separated...

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Bibliographic Details
Published in:Journal of commodity markets 2016-06, Vol.2 (1), p.1-5
Main Authors: Mann, Janelle, Sephton, Peter
Format: Article
Language:English
Subjects:
Benchmark
Brent
Crude oil futures
E3 and Q4
Oman
Threshold cointegration
WTI
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Summary:This paper empirically examines relationships and dynamics between the price of three crude oil benchmarks, namely the WTI, Brent, and Oman. Threshold cointegration is applied with findings that indicate a long run relationship exists between the pairs (WTI-Brent and WTI-Oman) of spatially separated spot markets. For the WTI-Brent spot price pair, there has not been a reversion to the long run relationship since the reversal in spread between the WTI and Brent. Further, threshold error correction models provide evidence that all three series move to restore the long run relationship in at least one regime for both pairings. Together, these results indicate that there currently is no global benchmark for crude oil. It is recommended that stakeholders such as central banks, traders, and policy makers closely monitor all three spot prices.
ISSN:2405-8513
2405-8505
DOI:10.1016/j.jcomm.2016.04.002