Title: The dynamics of crude oil price movements: from financialisation of crude oil prices and price expectation perspectives

Authors: Youngho Chang; Shang Jyi Soon; Mirza Muhammad Hanif; Lucy Kusnadi

Addresses: Nanyang Technological University, Singapore ' Nanyang Technological University, Singapore ' Nanyang Technological University, Singapore ' Nanyang Technological University, Singapore

Abstract: This paper aims to examine the price pressure transmission effect from the crude oil futures market to the spot market through price expectation channel. It derives the relationship between the spot and the futures prices in the crude oil market and finds that the changes of the futures price and world output significantly predict the spot price movement. The impulse responses and the variance decomposition analyses demonstrate that the effect of the futures price on the spot price change is limited in a shorter period and diminishes as transmitting to the medium-run and the long-run while the effect of world output eventually increases and dominates in the long-run. The financialisation of crude oil prices indeed leads to a more drastic and frequent variation of price expectation among market participants that acts as a catalyst that destabilises the crude oil prices.

Keywords: price expectation; VECM; spot price; futures price; financialisation; price dynamics; oil price movements; crude oil prices; price pressure transmission; crude oil futures.

DOI: 10.1504/IJGEI.2015.070274

International Journal of Global Energy Issues, 2015 Vol.38 No.4/5/6, pp.298 - 321

Received: 01 Sep 2014
Accepted: 01 Dec 2014
Published online: 01 Jul 2015 *

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