Study On The Negative Price Influence Of Crude Oil Futures

WTI is the price benchmark of West Texas Intermediate crude oil in the United States,and its price is one of the important indicators of the global energy market.On April 20,2020,WTI crude oil futures price closed at-37.63USD/barrel,which was the first negative price transaction in the transaction history,which had a great international response.The WTI negative price event not only caused fluctuations in the energy market,but also spread to other financial markets,causing people’s concern about negative prices and questioning the trading system in the energy market.Negative asset prices are not a case.Before that,there were negative price events in electricity,natural gas and other markets.With the continuous development of the financial market,it is unknown whether there will be negative prices,but its impact on the financial market and social stability is significant.Therefore,this paper focuses on the negative price of WTI crude oil futures,sorts out its causes,and explores its impact on various markets,so as to increase investors’ and the public’s understanding of negative asset prices,so as to prepare for possible negative price events in the future.According to the above research ideas,this paper first sorts out the negative price of WTI crude oil futures,analyzes the reasons for the negative price,and on this basis,expounds the theoretical impact of negative price.Secondly,this paper empirically studies the impact of negative price of crude oil futures on the spot market by using VECM model and GARCH model,and empirically studies its risk spillover on the crude oil futures market and stock market by using static and dynamic volatility spillover indexes,and obtains the impact of negative price events on the spot market,crude oil futures market and stock market.Furthermore,this paper analyzes the risk characteristics of negative price,and provides reference for the prediction of negative price risk by constructing index.It is found that the occurrence of this negative price event is mainly the result of three factors.First,the COVID-19 epidemic led to the decline in crude oil demand and the failure of negotiations on crude oil production reduction,which led to the imbalance between supply and demand;Second,the available storage capacity of crude oil is insufficient,which makes the holding cost of crude oil rise;Thirdly,CME exchange modified the pricing model,which provided conditions for negative prices.This negative price incident has caused a severe impact on the crude oil market,forcing some crude oil producers to close their oil wells or reduce production,and it has spread to the financial market,which has hit investor confidence and increased market uncertainty.Through empirical research,it is found that for the spot market,negative price events significantly reduce the price guidance function of the futures market to the spot market,which makes it difficult for the price adjustment of the spot market to obtain effective information from the futures market and greatly increases the risk level of the spot market.For the crude oil futures market,firstly,WTI has always played the role of a net exporter of risks in the whole crude oil futures system,which will cause risk spillover to other markets.At the same time,INE and Japanese crude oil futures market mainly play the role of net risk recipients,and cannot generate net risk spillover to other markets;Secondly,the occurrence of negative price events has significantly improved the external spillover level of the overall risk of crude oil futures market and the external spillover level of WTI crude oil futures market risk;Thirdly,Brent crude oil futures market and INE crude oil futures market received the highest risk level from WTI crude oil futures market in negative price events,but the INE crude oil futures market was the most affected by negative price,and accepted the most risk spillover.For the stock market,firstly,WTI crude oil futures market can realize one-way transmission of risks to other countries’ stock markets,and the countries most affected are Russia and Australia.At the same time,the United States and Britain are also in the position of net risk spillover in the whole system.Second,the negative price event caused the WTI crude oil futures market to cause severe risk spillover to the stock markets of all countries,and Russia and Australia were relatively greatly affected.Finally,according to the research conclusion,this paper puts forward some suggestions for market regulators and investors to guard against negative price risk.Market regulators should improve their own risk handling ability,timely disclose the risks of related products in the financial market,and enhance the education of investors’ risk tolerance,while investors should also enhance their understanding of investment products and improve their financial literacy.