Price Discovery in Crude Oil Futures

34 Pages Posted: 18 Sep 2014 Last revised: 10 Feb 2018

See all articles by John Elder

John Elder

Colorado State University

Hong Miao

Colorado State University, Fort Collins - Department of Finance & Real Estate

Sanjay Ramchander

Colorado State University, Fort Collins - Department of Finance & Real Estate

Date Written: September 16, 2014

Abstract

This study examines price discovery among the two most prominent price benchmarks in the market for crude oil, WTI sweet crude and Brent sweet crude. Using data on the most active futures contracts measured at the one-second frequency, we find that WTI maintains a dominant role in price discovery relative to Brent, with an estimated information share in excess of 80%, over a sample from 2007 through 2012. Our analysis is robust to different decompositions of the sample, over pit-trading sessions and non-pit trading sessions, segmentation of days associated with major economic news releases, and data measured to the millisecond. We find no evidence that the dominant role of WTI in price discovery is diminished by the price spread between Brent that emerged in 2008.

Keywords: Crude Oil Futures, WTI, Brent, Information Sharing, Inventory Level, Spread

Suggested Citation

Elder, John and Miao, Hong and Ramchander, Sanjay, Price Discovery in Crude Oil Futures (September 16, 2014). Energy Economics, 46, 2014.. Available at SSRN: https://ssrn.com/abstract=2497052

John Elder (Contact Author)

Colorado State University ( email )

Dept of Finance & Real Estate
1272 Campus Delivery
Fort Collins, CO 80523
United States
970-491-2952 (Phone)

HOME PAGE: http://lamar.colostate.edu/~jelder

Hong Miao

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States

Sanjay Ramchander

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States
970-491-6681 (Phone)

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