International Crude Oil Spot Price Volatility

Oil is well-known as kind of important industrial raw material and strategic resource, of which the price volatility would make great impact on its producing country as well as world economy. Furthermore, once the rise and fallof oil price is enlarged by international trade it could possibly give rise to world-wide inflation or economic depression. So it’s quite necessary for us to figure out the driving forcesof intense oil price undulation to better control the risk.Energy futures market has doubtlessly played an important role in oil price fluctuation for recent10years. As it is not isolated, it will be surely affected by other markets. But what will lead to energy spot market under the condition that futures market is closely related to other markets (e.g.,the US foreign exchange market)?In this paper, we have first focused on the financial mechanism of oil price fluctuation; and then more empirical work is done to further confirm the accurate degree of the spillover effect.According to our study, futures price of WTI oil has played a leading role in spot price determination, which proves that futures market is running effectively. But the effectively-running futures market doesn’t help to make the spot oil market stable, which indicates that futures market has been affected by other financial markets. Based on the volatility spillover results between US dollar exchange rate and oil price, the exchange rate of dollar has unidirectional effect towards oil price. Considering that this kind of transmission is mostly caused by the portfolio reallocation of market participants, especially speculators, more regulative construction is needed to keep pace with present market conditions.