اثر بخش مالی بر تحول قیمت نفت : تجزیه و تحلیل سهم بازار آینده به فرآیند کشف قیمت در بازار آتی نفت دبلیو تی آی

The aim of this article is to empirically measure the contribution of the futures market to the price discovery process in the spot market for benchmark crude oils, specifically that for West Texas Intermediate (WTI). For this purpose, we test the hypothesis that the recent evolution of the financial markets has affected the future oil market so as to increase its contribution to the price discovery process of the spot market. We modeled the relation between WTI spot and future prices as a cointegration relation. By using the Kalman filter technique, it was possible to obtain a time-varying measure of the contribution of future markets to the price discovery mechanism. The results show that in the case of WTI, the contribution of the futures market has been increasing, especially between 2003 and 2008 and then again after the start of 2009, evidencing the growing importance of factors particular to the financial markets in determining oil prices in recent years. During 2009, the spot prices adjusted to agents' future expectations rather than to the current supply and demand conditions.

The “price of oil” is a variable with a significant impact on the economy of virtually all countries, be they petroleum importers or exporters. For large consuming countries, this impact is the result of the dominant presence of fossil fuels to supply the energy needs of the transport sector, for both freight and passengers. According to the International Energy Agency (IEA, 2008), oil accounted for around 36% of global final energy consumption in 2006, while in the transport sector, which is responsible for 27.5% of total final energy consumption, petroleum products accounted for 94.5% of final energy use. In turn, for the main producing nations, the oil price affects the economy both through the trade balance and the fiscal balance, because oil exports in many of these countries account for over 80% of revenues and foreign exchange, according to the Organization of Petroleum Exporting Countries (OPEC, 2010). Data from the U.S. Department of Energy show that in the past 20 years oil prices have fluctuated hugely.1 Although most of the 1990s were marked by a certain stability, with the spot price of WTI fluctuating around US$15/bbl to US$20/bbl, at the end of that decade, after an economic crisis that dragged the price down close to US$10/bbl, a process of steady rise began, with ever higher prices successively setting new records during the 2000s, peaking at US$145/bbl in July of 2008. Then there was a sharp decline caused by the global economic crisis at the end of 2008, taking WTI down to US$40/bbl, after which it recovered to above US$75/bbl in 2010. It is currently threatening to break new record highs. For these reasons, it is worth studying in detail the factors behind movements in the “price of oil”. According to Energy Intelligence (2007), more than 180 oil streams are traded in the world, each one with its own characteristics and price. Indeed, petroleum is not a homogenous commodity. Therefore, before trying to determine the factors behind these price movements, it is necessary to identify which crude oil(s) is(are) most relevant for analysis. According to Mabro (2005), the oil market underwent substantial transformations in the 1980s, and these changes still serve to define the market fundamentals. Until the collapse of oil prices in 1986, the most relevant crudes in terms of pricing were those sold by the large producing countries in the Middle East, whose prices were set by those nations' governments. These were called “government selling prices” or “official selling prices” (GSPs or OSPs). Nevertheless, even in this period the spot market for trading of physical deliveries was already relevant, and although the spot market only accounted for about 5% of global oil transactions (Energy Intelligence, 2007), the prices in this market influenced the formation of the GSPs or OSPs of the producing countries. In 1986, as described by Mabro (2005), the first oil sale contract appeared using a formula containing a spot price as a benchmark for the price level, plus a spread.2 That practice then started to disseminate to the various exporting countries until it became the main basis of the oil price formation architecture, as it still is today. In general lines, for a determined oil stream, crude oils said to be benchmarks are used as references for the level of prices, while the specific price of the stream in question is defined through a differential in relation to the price of the benchmark crude. According to Mabro and Horsnell (1993)) and Bacon and Tordo (2005), this differential is influenced by a series of factors, among them the physical chemical properties of the particular crude involved, its refinery yield, supply and demand conditions, commercial strategy of the producer, logistics and geopolitical aspects. Because of this underlying importance, the price of benchmark crudes has become a focus of analysis. Unlike the crude oils from the Middle East, whose prices were basically administered in the 1960s and 70s, the prices of benchmark crudes are defined by competitive mechanisms. This occurs between a large number of buyers and sellers engaged in daily transactions with physical deliveries of oil, permitting definition of the price. Over time, however, the markets for benchmark oils have become more sophisticated and complex, due to two main factors: a) Under the system of administered prices, the prices changed according to a defined frequency and after a certain degree of evaluation of the political and market conditions by those responsible for setting the OSPs/GSPs. In contrast, the prices defined in a competitive market vary several times a day, as a result of instantaneous and decentralized assessments of the market conditions by the participants. This level of uncertainty and volatility results in greater risk for the participants, a risk that in turn prompted the development of hedging mechanisms to manage it. b) In theory the physical markets in which benchmark crudes are traded depend on a relatively broad base to exist. As shown by Mabro (2005), with the passage of time the output of these benchmark crudes declined and the volume of transactions in these markets also diminished. This fact led to squeezes3 and hampered the use of these prices to value other transactions, because the spread of new information about the market in terms of prices was impaired. The development of markets for derivatives (mainly for future contracts) for these oils performed an important role in solving the problems raised by the above authors. According to Garbade and Silber (1983), the transfer of risk and the contribution to the price discovery process are the main two advantages of futures markets for the organization of economic activity. The price discovery function is defined in Garbade and Silber (1983) as the ability of a market to quickly reflect the arrival of new information in terms of price variations. In the case of petroleum, the market for future contracts helps transmit information to the spot market. In the debate over the reasons for the movement of oil prices in the past decade, the role played by the evolution of financial markets has been a constant theme in the literature. As can be seen in Kaufmann (2011), Interagency Task Force on Commodity Markets (2008) and Medlock III and Jaffe (2009)), among others, this evolution is the reason behind the existence of “speculative” impacts on prices. These “speculative” impacts, in turn, are contrasted with the so-called “fundamentals”, which are interpreted as the physical factors of the oil market: supply, demand, reserves and stocks. Based on the fact that the evolution of the financial markets more directly affects the prices of future oil contracts than spot prices, this article seeks to empirically measure the degree of contribution of financial markets to the price discovery process in the spot markets for benchmark crudes. Therefore, we test the hypothesis that the recent evolution of the financial markets has affected the market for future oil contracts so as to expand its contribution to the price discovery process of benchmark crudes. The non-rejection of this hypothesis provides evidence to support the idea that the evolution of petroleum futures markets can be related to the growing importance of financial factors in driving the price movements of benchmark oils. In terms of expected results, in carrying out an extensive analysis of the Granger causality with a range of oil types in both the spot and futures market in various regions, Kaufmann and Ullman (2009) concluded that the future prices of light crude on the New York Mercantile Exchange (NYMEX), along with the spot prices of Dubai crude, provide new information about the petroleum market. Hence, it is reasonable to assume that the future prices of light crude on the NYMEX have an increasing influence on the price discovery process in the spot market for WTI crude oil. Other examples of causality analysis involving spot and future prices of crude oil can be found in the studies of Silvapulle and Moosa (1999) and Diks and Bekiros (2008). Besides the analysis of linear causality, these studies also tested nonlinear causality among spot and future prices for crude oil. Both concluded that there is some degree of feedback from spot to future prices, and there are evidences of time-varying causality relationships between the spot and the future market. Results point to bidirectional causality. This is in line with Kaufmann and Ullman (2009) findings. However, as the methodological section and the analytical section of this paper will indicate further, although qualitatively, our findings can be compared to the ones of the studies mentioned above, the method developed and applied by us focuses on a different perspective of the subject studied, which is measuring the time variation of the degree of contribution of financial markets to the oil price discovery process, using WTI as the case study. Our method is described in Kim (2011), which presents a thorough revision of the scientific literature concerning the methods of measuring the contribution of financial markets to the oil price discovery process. We decided to analyze this relationship for WTI crude because it is a benchmark oil widely used as a reference in the pricing formulas included in oil purchase agreements. As shown by Energy Intelligence (2007), in the 1980s WTI was not used widely as a benchmark outside the United States. With an API degree of 42 and sulfur content of around 0.42%, WTI is produced in the United States and is mainly sold domestically, particularly to refineries on the Gulf Coast and in the Midwest. According to Purvin and Gertz (2010)), WTI gained importance in global terms when it was used as one of the crudes whose physical delivery is permitted for purposes of settling future contracts for Light Sweet Crude Oil4 on the NYMEX. As shown by Chassard and Halliwell (1986), after its launch in 1983, the NYMEX futures market grew rapidly, with trading volume of 1.49 million contracts5 in 1984, 3.58 million in 1985 and 2.98 million in just the first six months of 1986. This fast initial growth increased the liquidity of the oil futures market as a whole and provided greater international visibility to WTI as a benchmark. This visibility led to the use of WTI as a reference in pricing formulas for exports by various countries whose output reaches the American market. According to Purvin and Gertz (2010)) there are crude oil exporters that explicitly refer to WTI as an index for their commercial transactions. In 2008,6 countries like Saudi Arabia, Kuwait, Iraq, Colombia, Ecuador and Venezuela were among those exporters. Also according to Purvin and Gertz (2010) this list is far from exhaustive because of the difficulty in obtaining information about all transactions. Those authors believe that the pricing formulas of most crude oils traded in the Americas contain WTI as an element. In the next section we describe the methodology used to assess the contribution of future contracts to the price discovery function of spot markets for benchmark crude oils. Then in the following section we present and analyze the results of applying this method to the WTI price series. The final section contains our conclusions and suggestions for future research.

To contribute to the debate on the influence of the financial sector on recent oil price movements, we investigated the contribution of the futures market to the price discovery process of the spot market for WTI crude in the US market. By representing the longterm relation between spot and future prices as a cointegration model with error correction and using the Kalman filter technique, we were able to analyze the evolution of the contribution of the futures market to the price discovery process of WTI over the past 20 years. The results of this analysis show that the contribution of futures markets to the price discovery process has been variable over time, increasing between 2003 and 2008, in parallel with the period when the oil futures markets were developing, then declining just after the crisis in 2008, before increasing again starting in 2009 with economic recovery, indicating restoration of the influence of the futures market on oil prices. These results provide further empirical evidence for the results obtained in the recent literature indicating the growing importance of financial factors on the behavior of oil prices. Among these factors are the degree of participation and type of financial agents active in these markets, as well as particular aspects of their behavior. As we tried to indicate in the paper, our findings complement the ones of other studies whose focus was testing directional causality between spot and future markets. For instance, our findings reinforced those of Kaufmann and Ullman (2009)), by showing that futures and spot markets contribute simultaneously to price discovery. In addition, our study showed that futures markets contribution to price discovery has been increasing throughout time. However, unlike the argument of a sharp dichotomy between “speculation” and “fundamentals”, speculative factors do not act on prices without considering the physical elements of the oil industry, for two reasons. The first derives from the fact, as found in this study, that although the futures market contributes to the price discovery process in the WTI spot market, at no time has the spot market blindly followed the behavior of prices in the futures market, hence with the spot market also making a contribution. In other words, the value of the measure of the contribution of the future market to the price discovery process over time (δt) was always less than 1. The second reason derives from the argument of Fattouh (2010b), according to which financial agents also are clearly influenced by supply and demand conditions in forming their expectations about future prices. Therefore, a point that deserves focus in future research is the nature of the relationship between the degree of dominance of the futures market in the price discovery process, measured by δt, and the degree of contribution by macroeconomic and financial elements and expectations about fundamentals to oil price movements. In light of the empirical evidence presented in the recent literature, it is reasonable to assume that this relationship exists and that it operates in the direction mentioned. However, there is not enough information to measure the nature of this relationship, making it necessary to perform more detailed studies. Finally, the methodology developed and applied in this paper could also be utilized for the Brent crude market, since this crude serves as a benchmark for a large volume of oil streams traded in Europe and Africa. It would be interesting to investigate if the particular characteristics of the architecture of the Brent market would lead to results different than those observed forWTI crude oil.