COST OF CARRY, CAUSALITY AND ARBITRAGE BETWEEN OIL FUTURES AND TANKER FREIGHT MARKETS

The most prominent crude oil grade in the United States and the primary pricing marker for North American crude is West Texas International (WTI). This study investigates the causal relationship between WTI futures and imported crudes. In doing so, the role of transportation costs are also considered, which provides insights into the mechanics of the shipping freight market. Using physical crude oil prices for the Brent and Bonny markets, WTI futures prices and freight rates, evidence is found that supports the existence of a relationship between tanker freight rates and physical-futures differentials in the crude oil market. This is mainly attributed to regional supply and demand imbalances and suggests that arbitrage opportunities between oil derivatives and tanker freight markets exist. Simulated trading strategies reveal the existence of excess profits. These excess profits appear robust to variations in timing of initiation of arbitrage, transaction costs and pipeline charges.

• Record URL:
  http://www.sciencedirect.com/science/article/B6VHF-4CB0VR4-1/1/1ec25005e8da228666e69618828dd4e4
• Availability:
  • Find a library where document is available. Order URL: http://worldcat.org/issn/13665545
• Corporate Authors:

  Elsevier

  The Boulevard, Langford Lane
  Kidlington, Oxford  United Kingdom  OX5 1GB
• Authors:
  • Alizadeh, A H
  • Nomikos, N K
• Publication Date: 2004-7

Language

• English

Media Info

• Features: Figures; References; Tables;
• Pagination: p. 297-316
• Serial:
  • Transportation Research Part E: Logistics and Transportation Review
  • Volume: 40
  • Issue Number: 4
  • Publisher: Elsevier
  • ISSN: 1366-5545
  • Serial URL: http://www.sciencedirect.com/science/journal/13665545

Subject/Index Terms

• TRT Terms: Costs; Crude oil; Freight transportation; Oil tankers; Pipeline transportation; Prices; Profits; Tanker shipping
• Uncontrolled Terms: Arbitrage; Freight rates; Spot markets
• Subject Areas: Economics; Finance; Freight Transportation; Marine Transportation; Pipelines;

Filing Info

• Accession Number: 00975129
• Record Type: Publication
• Files: TRIS
• Created Date: Jun 27 2004 12:00AM