Oil price volatility: An Econometric Analysis of the WTI Market

Emmanuel Hache (1) , Frédéric Lantz (1)

1 IFPEN - IFP Energies nouvelles

The aim of this paper is to study the oil price volatility in West Texas Intermediate (WTI) market in the US. By using statistical and econometric tools, we first attempt to identify the long-term relationship between WTI spot prices and the prices of futures contracts on the New York Mercantile Exchange (NYMEX). Subsequently we model the short-term dynamic between these two prices and this analysis points up several breaks. On this basis, a short term Markov Switching Vectorial Error Correction model (MS-VECM) with two distinct states (standard state and crisis state) has been estimated. Finally we introduce the volumes of transactions observed on the NYMEX for the WTI contracts and we estimate the influence of the non-commercial players. We conclude that the hypothesis of an influence of noncommercial players on the probability for being in the crisis state cannot be rejected. In addition, we show that the rise in liquidity of the first financial contracts, as measured by the volume of open interest, is a key element to understand the dynamics in market prices.

Domaines: Sciences de l'Homme et Société; Economies et finances

Emmanuel Hache, Frédéric Lantz. Oil price volatility: An Econometric Analysis of the WTI Market: Cahiers de l'Economie, Série Recherche, n° 80. 2011. ⟨hal-02472326⟩