LAPSE

LAPSE:2019.0399
Published Article
LAPSE:2019.0399
Analyzing Crude Oil Spot Price Dynamics versus Long Term Future Prices: A Wavelet Analysis Approach
Josué M. Polanco-Martínez, Luis M. Abadie
February 27, 2019
The West Texas Intermediate (WTI) spot price shows high volatility and in 2014 and 2015 when quoted prices declined sharply, long-term prices in future markets were less volatile. These prices are different and diverge depending on how they process fundamental and transitory factors. US tight oil production has been a major innovation with significant macroeconomic effects. In this paper we use WTI spot prices and long-term futures prices, the latter calculated as the expected value with a stochastic model calibrated with the futures quotes of each sample day. These long-term prices are the long-term equilibrium value under risk neutral measurement. In order to analyze potential time-scale relationships between spots and future, we perform a wavelet cross-correlation analysis using a novel wavelet graphical tool recently proposed. To check the direction of the causality, we apply non-linear causality tests to raw data and log returns as well as to the wavelet transform of the spot and futures prices. Our results show that in the spot and futures markets for the period 24 February 2006⁻2 April 2016 there is a bi-directional causality effect for most time scales (from intra-week to biannual). This suggests that spot and futures prices react simultaneously to new information.
Keywords
futures oil markets, Maximal Overlap Discrete Wavelet Transform (MODWT), nonlinear causality test, oil spot prices, stochastic model, tight oil, time series analysis, wavelet correlation
Suggested Citation
Polanco-Martínez JM, Abadie LM. Analyzing Crude Oil Spot Price Dynamics versus Long Term Future Prices: A Wavelet Analysis Approach. (2019). LAPSE:2019.0399
Author Affiliations
Polanco-Martínez JM: Basque Centre for Climate Change—BC3, Edificio Sede No. 1, Planta 1ª, Basque Country University Science Park, 48940 Leioa, Spain; UMR EPOC CNRS 5805, University Bordeaux, 33615 Pessac, France
Abadie LM: Basque Centre for Climate Change—BC3, Edificio Sede No. 1, Planta 1ª, Basque Country University Science Park, 48940 Leioa, Spain [ORCID]
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Journal Name
Energies
Volume
9
Issue
12
Article Number
E1089
Year
2016
Publication Date
2016-12-20
Published Version
ISSN
1996-1073
Version Comments
Original Submission
Other Meta
PII: en9121089, Publication Type: Journal Article
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LAPSE:2019.0399
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doi:10.3390/en9121089
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Feb 27, 2019
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CC BY 4.0
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[v1] (Original Submission)
Feb 27, 2019
 
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Feb 27, 2019
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Original Submitter
Calvin Tsay
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