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Determinants Of International Crude Oil Price In Current Phase

Posted on:2015-06-16Degree:DoctorType:Dissertation
Country:ChinaCandidate:J LiangFull Text:PDF
GTID:1109330467965561Subject:Finance
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This paper conducts its analysis on the basis of a fundamental assumption:the determinants for the prices of any commodity in the short term, mid-term, and long term, is very different from one another; for oil prices, significantly different determining factors are at work for each time horizon. Long-term determinant is impactful for prices in the long run, mid run, and short run. Mid-term determinant affects mid-and short-term price changes. And short-term determinant is only effective for price changes in the near term. The paper looks into crude prices at each time horizon, assuming that the underlying causes for price changes of each time horizon are non-renewable resources theory (long-term), pricing power (mid-term), and sudden events (short-term).There are eight chapters in this paper.Chapter1is introduction, which simply states the background, research route, innovation points and shorages.Chapter2isliterature review, which briefly reviews historical crude oil price research.In chapter3, itfirst identifies the cut-off of mid-term for international oil prices by combining the non-renewable resources theory that determines long-term price change with the historical behavior of international oil prices. Based on four assumptions and in the context of three game agents, the paper looks closely at the objectives of each game agent and the policies and tools at their disposal to reveal the underlying forces behind each time horizon:different pricing powers and controlling forces. The paper goes on to summarize the developments of these powers and forces over time.In chapter4, the micro pricing system of the international oil market in the current pricing regime is analyzed. By looking into the major price types and systems in the crude spot market and financial market, the paper concludes that the spot market is formed referring to the spot or futures prices of three benchmark oil, with the pricing formula as connection, one linked to another at different levels. On the contrary, the financial market of oil is built on the futures market, which creates innovative financial products by replicating portfolio, whose exposure must be hedged in the futures market as well. The interaction between futures and spot is realized by financial products innovation and spot delivery. This part sums up by revealing the five key factors behind the success of the three benchmark oil futures.Chapter5looks into factors affecting mid-term price changes. Supply and demand equilibrium model is established, taking into consideration of all fundamentals that impact supply and demand. Each fundamental element is identified and confirmed using inverse function method. After that, regression analysis, considering monetary factors, is used to identify significant variables:exploration and production investment, alternative energy prices (coal), oil production, economic development, oil reserves, inflation, money supply, and financial maturity. All significant variables are incorporated into an integrated model with the help of principal component analysis. Further, VAR model is established on the basis of factors so far identified to predict the international oil prices in a coming time frame and understand any deficiency. Supply and demand theoreticmodel is built and scrutinized to uncover any substantial factors that may have significant impact on current international oil prices but are not included in the integrated model. For example, higher environmental standards for oil products, the emerging of China and India as two big oil consumers, and a financial factor:the extensive use of crack spread.Chapter6studies short-term fluctuations of international crude prices. It first identified a continuous fluctuation period in excess of one standard error since2003, revealed the events/factors underpinning the fluctuations with the help of data mining and expert insight, and pinned down major events. Based on the influencing factors uncovered from mid-term price change analysis and their reflections in short term, a regression model is built to analyze the direction, size, and cause of each factor. VAR model is then produced to predict future price and understand any weakness of the model. Since the short-term regression model is a rather weak explainer, and many events/factors are hard to be included in the model quantitatively, the paper utilizes basic and extended change and coordination correlation test method to understand each categorical event and whether there exists the representative heuristics described in behavioral finance. The purpose is to provide some guidance for oil market players in case they are faced with such events again.Chapter7uncovers how the US controls international oil prices, the sustainability of the current pricing system, any challenging forces, and probability of the demise of the system. It concludes that the US controls oil pricing with its oil financial strategy, which is built upon the fact that oil sales throughout the world are denominated in US dollars. Complementary to this strategy is international cooperation, especially that between two key countries:the UK and Saudi Arabia. The crackdown on hostile forces is also important, and strategic oil reserves are serving as the bottom line. The paper reveals that the ever expanding US oil strategic reserves, loosened financial regulation, and diversified international reserves are all remarkably impacting current oil prices. It also acknowledges the stability and sustainability of the current pricing system and demonstrates that the biggest challenge for the system is the UK adopting the euro.In chapter8, based on analysis results and China reality, the paper makes suggestions on how China can expand its influence in determining oil prices to maximize its national interest.
Keywords/Search Tags:internationalcrude oil price, pricing power, oil finance, behavioral finance, determinants of price
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