The Nexus between Stock Returns of Oil Companies and Oil Price Fluctuations after Heavy Oil Upgrading: Toward Theoretical Progress

Mojtaba Sedighi, Majid Mohammadi, Saeed Farahani Fard and Mehdi Sedighi
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Mojtaba Sedighi: Department of Finance, Qom Branch, Islamic Azad University, Qom 3749113191, Iran
Majid Mohammadi: Department of Energy Engineering, Faculty of Science, Qom University of Technology, Qom 151937195, Iran
Saeed Farahani Fard: Department of Management and Economics, University of Qom, Qom 3716146611, Iran
Mehdi Sedighi: Department of Chemical Engineering, University of Qom, Qom 3716146611, Iran

Economies, 2019, vol. 7, issue 3, 1-17

Abstract: This study attempts to discover the nexus between crude oil price fluctuation after heavy oil upgrading and stock returns of petroleum companies in the U.S. Stock Exchange for the years 2008 to 2018. One of the methods of upgrading heavy crude oil is to extract asphaltene from crude oil. Considering the Asphaltene Removal (AR) as a factor in the nexus between oil price and the stock market is an innovation in the literature of energy finance. Asphaltenes cause many problems in the petroleum industry, which increases the cost of oil production and reduces the financial efficiency of oil companies. The AR is certainly one of the significant matters of the oil industry and can affect the price of oil. Therefore, changes in the price of oil can influence the price of oil company stocks. Hence, changes in stock prices will certainly affect the stock returns of oil companies. In an effort to solve this puzzle, the four financial models were employed to explore the nexus between oil price fluctuations and stock returns. The analysis of the results demonstrated that the oil price fluctuations caused by the removal of asphaltenes influence the stock returns of petroleum companies. Eventually, the theoretical hypothesis was confirmed by considering the USA as a case study. The outcomes of this investigation are a theoretical progression in areas related to the petroleum industry and the stock market that could lead to the adoption of new investment policies in the petroleum industry including investing in new procedures to manage and decrease the costs and time of the AR process, which would result in the advancement of petroleum companies. In fact, we have introduced a modern investment strategy in the oil industry aimed at reducing oil production costs, improving financial statements and increasing the stock returns of petroleum companies. Eventually, we will present new investment policies in the oil industry that can lead to economic growth and development of financial markets especially stock market, derivatives market, futures exchange, commodities exchange, as well as bond market.

Keywords: stock returns; oil price; CAPM; heavy oil upgrading; AR; oil price fluctuations; GARCH (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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