Determinants of the Crude Oil Futures Curve: Inventory, Consumption and Volatility

32 Pages Posted: 14 Sep 2016

See all articles by Christina Sklibosios Nikitopoulos

Christina Sklibosios Nikitopoulos

University of Technology Sydney - Business School; Financial Research Network (FIRN)

Matthew Squires

University of Technology Sydney (UTS)

Susan Thorp

The University of Sydney Business School

Danny Yeung

University of Technology Sydney (UTS); Financial Research Network (FIRN)

Date Written: September 14, 2016

Abstract

Since 2008, the usually negative crude oil futures spread has been positive for extended periods, raising doubts about conventional explanations. We re-examine the dynamics of the futures spread using monthly VARs on the CME WTI oil futures spread, OECD and U.S. oil and petroleum inventories and consumption, and historical and implied volatility. When we model the spread as one continuous series, results confirm bi-directional causation between inventory and the futures spread, as predicted by the theory of storage. However results show that excess inventory is not adequately modelled as deviations from a secular trend: consumption has a separate causal relation with de-trended inventory. When negative and positive spread regimes are modelled separately, we find that shocks to OECD petroleum consumption directly widen negative spreads. Further, increases in volatility make positive spreads more steeply positive but are not related to negative spreads, consistent with inelastic supply of crude oil.

Keywords: Oil futures curve, Inventory, Consumption, Implied volatility, VAR

JEL Classification: Q40, C58

Suggested Citation

Sklibosios Nikitopoulos, Christina and Squires, Matthew and Thorp, Susan and Yeung, Danny, Determinants of the Crude Oil Futures Curve: Inventory, Consumption and Volatility (September 14, 2016). Available at SSRN: https://ssrn.com/abstract=2838559 or http://dx.doi.org/10.2139/ssrn.2838559

Christina Sklibosios Nikitopoulos (Contact Author)

University of Technology Sydney - Business School ( email )

15 Broadway, Ultimo
Sydney 2007, New South Wales
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Matthew Squires

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Susan Thorp

The University of Sydney Business School ( email )

Abercrombie Building
H70
The University Of Sydney, NSW 2006
Australia
0290366354 (Phone)

Danny Yeung

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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