Evidence of efficiency in United States futures oil prices

The problem. The purpose of this study was to use the Perpetual Contract Data for West Texas Intermediate Crude Oil futures contracts in studies of the U.S. crude oil futures market prices to determine whether the market was efficient. Analysis was done to determine whether the Perpetual Contract Data exhibited the characteristics of a random walk. This characteristic would support studies of the market's efficiency using the presence or absence of predictive mechanisms. These mechanisms allow the forecast of the prices for futures contracts to be made on the basis of the past and current prices of these contracts.;Method. Daily data on U.S. crude oil perpetual futures contract prices were analyzed using standard statistical techniques and spectral analysis techniques. Spectral analysis was used on the first differences of daily data to determine whether the price change data contained cyclicality. Since these economic data series are a time series, spectral analysis techniques can be used to convert them into a frequency series where more powerful statistical methods are available to analyze the data.;Results. The result of the price series analyses of the contracts represented by the Perpetual Contract Data showed no significant cycles or autocorrelation in the data. The conclusion reached was that these was evidence to indicate the Perpetual Contract Data for futures prices is a random walk.;This conclusion is similar to the conclusion by Howard (1988) that spot West Texas Intermediate Crude prices follow a random walk. Thus, both the futures and spot markets efficiently capture current information in prices. That is, yesterday's information has no bearing on current prices in either market. Also, historical price information cannot be used to predict futures or spot West Texas Intermediate Crude Oil prices. Consequently, there is little need for additional information dissemination regulation. ftn*Originally published in DAI vol. 51, no. 12. Reprinted here with correct text.