Document Type : پژوهشی
Authors
Abstract
Introduction
The Extreme volatility of oil prices was led the numerous disruptions in the world market of oil and therefore, in the world economy in the late twentieth century. Many stocks that oil speculators imported to the market for profitability affected the major oil producers more than any other group because the marker crude oil pricing was always in change. Economic indicators are one of the most important factors in determining the price of goods in different markets and also can be considered as effective factors in oil future markets. For example, interest rates and risk premium are variables that and change future oil price from expectation channel (Fama & French, 2011). In addition, oil spot price and oil commercial reserves are affected its future price because the changing oil spot price is affected expectations and will be reflected in oil future price. The marker crude oil futures price is very important for traders, consumers and producers. Oil stock is significant and effect on the oil future price. This paper seeks to investigate the impact of economic variable on the behavior of marker crude oil futures price. Due to the high share of oil revenues in GDP in Iran, oil price volatility is led to disruptive development plans, annual plans and structural bottleneck in the long term.
Research Background
The cost of carry model refers to costs associated with the carrying value of an investment. These costs can include financial costs, such as the interest costs on bonds, interest rate, interest on loans used to make an investment, and any storage costs involved in holding a physical asset (Caporale ,(2010)). Cost of carry may also include opportunity costs associated with taking one position over another. In the derivatives markets, cost of carry is an important factor for consideration when generating values associated with an asset’s future price. Cost of carry can be a factor in several areas of the financial market. As such, cost of carry will vary depending on the costs associated with holding a particular position. Cost of carry can be somewhat ambiguous across markets which can have an effect on trading demand and may also create arbitrage opportunities. In the derivatives market for futures and forwards, cost of carry is a component of the calculation for the future price as notated below. The cost of carry associated with a physical commodity generally involves expenses tied to all of the storage costs an investor foregoes over a period of time including things like cost of physical inventory storage, insurance, and any potential losses from obsolescence. Each individual investor may also have their own carrying costs that influence their willingness to buy in the futures markets at different price levels. The futures market price calculation also takes into consideration convenience yield, which is a value benefit of actually holding the commodity.
Zyren (1997) believe that an important determinant of crude oil price is the commercial oil reserves demand. The commercial oil reserves demand is related to the differential of spot and future price. This difference reflects speculative returns for commercial crude oil reserves demand. When future price rises, commercial reserves will increase due low level storage costs in financial markets. Therefore, the difference between crude oil future and spot price determines the storage cost commercial reserves.
Research Methodology
For the first time, Engle in 1982 demonstrated that there are some conditions which some models can be studied simultaneously. These models are including the conditional average and conditional variance. The pre-mentioned models are known as ARCH models (returned conditional heteroscedasticity) that their basis is hidden in the elimination of heteroscedasticity in the studied patterns. There are many advantages of using these models. However, one of the main advantage of ARCH models is explaining the process of conditional variance due to its past information. In general, ARCH process q order is provided by the following equations.
In the model of generalized ARCH which is commonly called GARCH, both of the associated components and moving averages components appear in variance equation (Enders, 2004). The more savings in the model, the lower number of coefficients limits. One of the obvious advantages beyond the pre-mentioned advantages of GARCH model is that in some cases instead of a high order ARCH model, GARCH model is replaced that the principle of savings is more considered. Therefore, identification, and its evaluation is much easier than the previous models. Meanwhile, the simple model GARCH provides a concise description of the information (Bolerself 1986, MacCurdy and Morgan, 1988). One of the multivariate GARCH models is BEKK model which is used in investigating the overflow impact which is used in the research methodology of this paper.
Results
This study examines the factors of formation marker crude oil futures price and analyzes the effect of variables such as interest rate, risk premium, market structure and oil commercial reserves on marker crude oil futures price. Rising interest rate have increased the cost of commercial storage then oil demand reduced in the physical oil market and consequently decreased future oil price in the market. In addition, due to the very close relationship between the physical and future oil market (through the channel of expectation formation) the future and spot price are co movement. Also, strengthening risk premium leads to increase oil commercial reserves, thereby increasing demand in the physical market and decreasing demand in the futures market. In addition, as cantango increases, the commercial reserves demand will increase because the cost of buying oil at the present time lower than forward time.
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