The Conduction Relationship Between Crude Oil Price And Crude Oil Market Fundamentals Based On Price Spread

Crude oil is the largest commodity in the world,with political attributes,financial attributes and commodity attributes.Its price signals incorporate macroeconomic factors,financial factors and supply & demand information,which are related to the crude oil market.First,this paper extracts the supply &demand information included in the crude oil price by the price spread model.,The supply & demand information refers to the marginal fundamentals or fundamentals based on the price spreads in this study.Then,by constructing the wavelet coherence model to study the in-phase &out-of-phase and leading-lag relationship of the marginal fundamentals,it is found that there is a conduction relationship between the marginal fundamentals of the crude oil market,and there is a dominant marginal fundamental that can represent the marginal fundamentals in every region.Finally,a wavelet-based GARCH-BEKK model is constructed to study the multi-scale features of the relationship between the dominant marginal fundamental and crude oil prices.Through the above three steps,the research on "the conduction relationship between crude oil price and crude oil market fundamentals based on price spreads" was completed.The specific research tasks and conclusions are as follows:First,the marginal fundamental information of the crude oil market is extracted by constructing the price spread model.The fundamentals of the crude oil market can be divided into Basic fundamentals and Marginal fundamentals.The price information extracted by the price spread model reflects the marginal fundamentals of the crude oil market.When the regions are independent,the price spread model decomposes the marginal fundamentals into the regional marginal supply characterized by the crossregional spread,the crude oil demand of the refinery characterized by crack spread,the crude oil inventory characterized by the inter-period spread.This characterization relationship is achieved through arbitrage between different crude oil markets,crude oil futures and spot,refined oil and crude oil.Second,identifying the dominant marginal fundamentals of the crude oil market in the three regions through wavelet coherence models.By constructing the wavelet coherence model to study the in-phase &out-of-phase and leading-lag relationship of the marginal fundamentals,it is found that the marginal supply,the refinery demand and the crude oil inventory have the same phase change relationship,and there is a time leading marginal fundamental with significant conduction effect..The dominant Marginalfundamental in the three regions are as following: regional marginal supply in North America;refinery demand in the pan-Mediterranean region;regional marginal supply in the Middle East-Asia-Pacific region.Then replace the marginal fundamentals with the dominant marginal fundamental to focus on the scope of the study.Third,identifying multi-scale characteristics of the conduction relationship between the dominant marginal fundamentals of the three regional crude oil markets and the benchmark crude oil price bythe GARCH-BEKK model.Using the price spread to represent the marginal fundamentals,it is inevitable to introduce the redundant price information,and the wavelet multi-scale analysis can extract the effective marginal fundamental information from the price spread.Then the GARCH-BEKK model was constructed to study the mean conduction and volatility spillover between the dominant marginal fundamental and crude oil price.The results are addressed: in the long-term trend layer,there is no obvious conduction relationship in North America between the regional marginal supply based on the cross-regional spread and WTI oil price in both mean conduction and volatility spillovers;the refinery demand based on the crack spread in the pan-Mediterranean region have a stronger conduction effect on Brent crude oil prices in both mean conduction and volatility spillovers;the regional marginal supply based on cross-regional spreads in the Middle East-Asia-Pacific region shows a stronger conduction effect on Brent oil prices in both mean conduction and volatility spillovers.It can be seen from the research that whether the marginal fundamentals of the crude oil market can be transmitted to the crude oil price depends on whether the arbitrage mechanism can operate normally.