Measuring World Oil Market Integration with a Thick Pen

Abstract

This paper measures integration of the world crude oil market using two so-called Thick Pen methods: the Thick Pen Measure of Association (TPMA) as well as Multi-Thickness Thick Pen Measure of Association (MTTPMA). They allow one to capture time-varying co-movement of different regional crude prices as well as co-movement at different time scales; i.e. short-term and long-term features of the price series. A particular strength in this application is the ability to detect instabilities in oil price relationships. The analysis overall supports the notion of the world oil market as one great pool. However, there are still remarkable regional differences and dynamic developments. The notion of the world oil market as one great pool implies that oil prices reflect global supply and demand patterns. These prices, however, affect regional and local investment decisions in climate friendly technologies. This poses a challenge for energy transition policies.

Keywords: Co-Movement, World Crude Oil Market, Thick Pen

JEL Classification: C14, G15, Q31