Volatility of Oil Prices

August 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the behavior of crude oil prices since 1980, and in particular the volatility of these prices. The empirical analysis covers “spot” prices for one of the key internationally traded crudes, namely Dated Brent Blend. A GARCH (generalized autoregressive conditional heteroscedastic) model, which allows the conditional variance to be time-variant, is estimated for the period which includes the oil price slump of 1986 and the surge in prices in 1990 as a result of the Iraqi invasion of Kuwait. The paper also discusses the growth of futures and derivative markets and the dynamic links between spot and futures markets.

Subject: Commodities, Financial institutions, Financial markets, Futures, Futures markets, Oil, Oil prices, Price controls, Prices

Keywords: Futures, Futures markets, market, market efficiency, Middle East, Oil, oil market deregulation, oil market trader, oil price data, oil price series, oil price slump, oil price volatility, Oil prices, participants reaction, price, Price controls, price curve, price risk, price surge, spot price, term contract, WP

Pages:
20
Volume:
1996
DOI:
https://doi.org/10.5089/9781451954722.001
Issue:
082
Series:
Working Paper No. 1996/082
Stock No:
WPIEA0821996
ISBN:
9781451954722
ISSN:
1018-5941

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