Title: The dynamic relationship between tanker freight rates and crude oil production: evidence from causality analysis

Authors: Philipp Lauenstein

Addresses: Department of Economics, Helmut-Schmidt-University, Hamburg, Germany; Department of Applied Economics, HSBA Hamburg School of Business Administration, Hamburg, Germany

Abstract: This paper studies the dynamics between tanker freight rate and crude oil production levels. Making use of the Toda and Yamamoto (1995) procedure, it is tested for the (non-)existence of Granger (1969) causal relationships between the two variables. Over the sample period from 1998 to 2014, the results suggest that past information of crude oil production levels uni-directionally helps to predict current tanker freight rate levels. This holds both for aggregated global data and for specific trading routes. Moreover, making use of breakpoint analysis, it is found that this causal relationship is only valid until 2009, since when the global tanker shipping market suffers strongly from excess tonnage capacity. During periods of low earnings in the tanker market, freight rate levels are not impacted by changes in crude oil production. At the practical level, the findings imply that, depending on the state of the freight market, ship owners and operators may improve chartering decision-making by monitoring physical crude oil production volumes.

Keywords: tanker freight rates; crude oil production; Granger-causality; Toda-Yamamoto procedure.

DOI: 10.1504/IJTGM.2017.090250

International Journal of Trade and Global Markets, 2017 Vol.10 No.4, pp.267 - 289

Received: 11 Jan 2016
Accepted: 19 Jul 2016

Published online: 27 Feb 2018 *

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