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A new way of measuring the WTI – Brent spread. Globalization, shock persistence and common trends
Ist Teil von
Energy economics, 2020-01, Vol.85, p.104546, Article 104546
Ort / Verlag
Kidlington: Elsevier B.V
Erscheinungsjahr
2020
Link zum Volltext
Quelle
PAIS Index
Beschreibungen/Notizen
•Fractional cointegration in international oil markets is studied.•Shocks will have long-lived effects on both prices.•Oil markets are strong globalized.•Brent drives the WTI-Brent relationship.
The standard cointegration and the persistence of the spread of the Brent-WTI price have been widely analyzed. However, no studies have been able to present evidence of both issues jointly so far. A novel focus is presented in this paper from the application of the fractionally cointegrated vector autoregressive (FCVAR) approach, which allows the rigidity of the standard cointegration to be solved. As result of the application of the FCVAR model, we identify several degrees of globalization by analyzing the order of integration of the error correction term. Indeed, by using Permanent-Transitory decomposition analysis, we present what drives the relationship between both oil crude prices’ information. The findings shown here reveal that the Brent-WTI market is strongly globalized. Nevertheless, the Brent–WTI price spread follows a long memory process, and the Brent drives the Brent-WTI price structure. These results sustain some corollaries on economic policies for economic agents, policy makers and business operators.