Which Risk Factors Drive Oil Futures Price Curves?

Supplementary material available at: https://ssrn.com/abstract=3312707

We develop extensions that introduce regression structure to the multi-factor stochastic models of commodity futures price term structure dynamics. We demonstrate the accuracy with which these models can be calibrated to oil futures data and how they improve on existing models both in model fit and in model interpretation. We found leading observable factors that contribute to explaining the term structure of oil futures, in the presence of long and short term stochastic factors, included the dollar index, inventories, commodity indices and risk aversion associated to financial intermediaries. Furthermore, we determine the time frame on which these factors are explanatory.

Keywords: Crude oil futures, Theory of storage, Theory of normal backwardation, Hedging pressure, Futures Term structure

JEL Classification: C01, C1, C5, G13, Q02

Suggested Citation: Suggested Citation

Ames, Matthew and Ames, Matthew and Bagnarosa, Guillaume and Matsui, Tomoko and Peters, Gareth and Shevchenko, Pavel V., Which Risk Factors Drive Oil Futures Price Curves? (December 30, 2019). Available at SSRN: https://ssrn.com/abstract=2840730 or http://dx.doi.org/10.2139/ssrn.2840730