A cointegration analysis of NYMEX crude oil price
KeywordsCointegration ; Johansen procedure ; Crude oil price ; VECM ; Engle – Granger procedure
The scope of this thesis is to conduct a cointegration analysis on crude oil fundamentals based on (Dagoumas and Perifanis 2018) and examine whether a long run relation exists. In order to achieve this two different techniques were used namely residual based method and system estimation method. In the first case we used Engle – Granger procedure, while in the second case we used Johansen’s maximum likelihood estimation. Moreover, we imposed identification restrictions in order to identify purely exogenous shocks to the system and examine how crude oil price will react. Also, we applied Impulse Response Function analysis for presenting the aforementioned reaction graphically for twelve month horizon. The period that we analyzed was from 2008 until 2018 in a monthly-based frequency. The independent variables was from different segments of the oil industry such as purely economic fundamentals in supply and demand framework, from financial sector and macroeconomic variables. Additionally, we evaluated the elasticities in the short and in the long run in order to investigate which variables are responsible for fluctuations for these different periods. Empirical results showed that there is more than one Cointegration relationship and that the crude oil future’s price is mainly affected from fundamentals (supply and demand) in the long run but in the short run financial markets could also affect the price.