Title: The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis
Authors: Michail Filippidis; Renatas Kizys; George Filis; Christos Floros
Addresses: Subject Group of Economics and Finance, Faculty of Business and Law, University of Portsmouth, Portsmouth, PO1 3DE, UK ' Subject Group of Economics and Finance, Faculty of Business and Law, University of Portsmouth, Portsmouth, PO1 3DE, UK ' Department of Accounting, Finance and Economics, Bournemouth University, Bournemouth, The Executive Business Centre, BH8 8EB, UK ' Department of Accounting and Finance, Technological Educational Institute of Crete, Heraklion, Crete, 71004, Greece
Abstract: This study examines the globalisation-regionalisation hypothesis in the WTI/Brent crude oil futures price differential by considering a set of potential crude oil-market specific and oil futures market specific determinants at 1, 3 and 6 months to maturity contracts. We employ monthly data over the period 1993:1-2016:12. Our results show that different determinants explain the spread between the WTI and Brent futures prices at different maturities. In the shorter-run maturities (1-month and 3-month) we find that spreads of the convenience yield, oil production, open interest and trading volume exercise significant effects in the WTI/Brent futures price differential. By contrast, for longer-run maturities (6-month), spreads of the oil production, oil consumption and open interest seem to exercise the most significant effects. We further provide evidence of a regionalised oil futures market over the short-run. The findings of this study provide valuable information to energy investors, traders and hedgers.
Keywords: Brent; convenience yield; globalisation-regionalisation hypothesis; oil futures differential; WTI.
International Journal of Banking, Accounting and Finance, 2019 Vol.10 No.1, pp.3 - 38
Received: 09 Jan 2017
Accepted: 12 Sep 2017
Published online: 26 Apr 2019 *