Forecasting crude oil market volatility in the context of economic slowdown in emerging markets

Bernard Morard and Florentina Balu ()
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Bernard Morard: University of Geneva, Switzerland

Theoretical and Applied Economics, 2014, vol. XXI, issue 5(594), 19-36

Abstract: Crude Oil is a commodity with huge strategic importance to all countries in the world. But in the recent years, the oil market as well as all commodities market has crossed an intense period of changes due to a volatile international economic context. After a decade of rapid economic growth rates, China and the other emerging markets are slowing down. After a harsh and unpredictable crisis, the financial and commodity regulation has changed; the uncertainty and distrust have increased, and, implicitly, the prices volatility in financial and commodity markets has also increased. In this paper we empirically investigated the crude oil market price behaviour and proposed an econometrical GARCH model (Engle, 1982; Bollerslev, 1986) to forecast the volatility of this market. Our research questions are how crude oil price volatility has changed in the recent years? In order to answer to this question we developed an empirical analysis using daily future one month quotation of Brent, Dubai and WTI crude oil over the last three years. These quotations were extracted from Thomson-Reuters Database. Our results suggest a relatively small volatility in crude oil market on a short run with a price fluctuation around the level of 110 USD/barrel for Brent crude oil. Moreover, our final conclusion is that: the economic slowdown in emerging markets, but also the new regulations in commodity markets represent new challenges for economists and researchers, and ask for structural reforms to adjust to new context.

Keywords: crude oil market; commodity market; price behaviour forecast volatility; GARCH models. (search for similar items in EconPapers)
Date: 2014
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