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Book part
Publication date: 25 March 2010

Helen Xu

This study presents evidence of a statistically significant negative correlation between crude oil and equities over the past 20 years. Including proper proportions of…

Abstract

This study presents evidence of a statistically significant negative correlation between crude oil and equities over the past 20 years. Including proper proportions of negatively correlated assets in a diversified portfolio can improve the ratio of reward relative to risk, and therefore, adding crude oil with equities into a diversified portfolio can provide superior portfolio performance, compared with equities alone. Because crude oil prices held stable for nearly a century before the oil crisis of 1973, and oil derivatives did not begin trading actively on public markets until the 1980s, the diversification value of oil is a relatively new phenomenon. Also contributing to the phenomenon, the majority of oil reserves and the majority of crude oil production capacity worldwide are held by entities that are not traded in public equity markets, and therefore, the diversification benefits of oil cannot be fully realized by holding a portion of the global market portfolio of equities.

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Research in Finance
Type: Book
ISBN: 978-1-84950-726-4

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Energy Economics
Type: Book
ISBN: 978-1-83867-294-2

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Dynamic Linkages and Volatility Spillover
Type: Book
ISBN: 978-1-78635-554-6

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Article
Publication date: 31 January 2020

Sam O. Olofin, Tirimisiyu Folorunsho Oloko, Kazeem O. Isah and Ahamuefula Ephraim Ogbonna

The purpose of this study is to investigate the predictability of crude oil price and shale oil production, in a bid to examine the possibility of bi-directional causality.

Abstract

Purpose

The purpose of this study is to investigate the predictability of crude oil price and shale oil production, in a bid to examine the possibility of bi-directional causality.

Design/methodology/approach

The study adopts a recently developed predictability model by Westerlund and Narayan (2015), which accounts for persistence, endogeneity and heteroscedasticity. It also accounts for structural breaks in the predictive models.

Findings

The empirical results show that only a unidirectional causal relationship from crude oil price to shale oil production exists. This happens as crude oil price appears to be a good predictor of shale oil production; however, shale oil production does not serve as a good predictor for crude oil price. Accounting for structural break was found to improve the predictability and forecast accuracy of the predictive model. Our result is robust to choice of crude oil price benchmarks (West Texas Intermediate, Brent, Dubai Fateh and Refiners’ Acquisition Cost) and their denominations (real or nominal).

Research limitations/implications

The result implies that crude oil price must be considered when predicting shale oil production. Meanwhile, the non-significance of shale of production in crude oil price predictive model provides information to potential analyst, researchers and countries predicting crude oil price that failure to account for the effect of shale oil production would not have significant impact on the forecast accuracy of their models.

Originality/value

The study contributes originally to the literature on crude oil price–shale oil production in four major ways. First, it applies a recently developed predictability method by Westerlund and Narayan (2015), which is more suitable for dealing with persistence, conditional heteroscedasticity and endogeneity in the predictors. Second, it investigates existence of reverse causality between crude oil price and shale oil production. Third, it examines the variation in the response and effect of four major crude oil price benchmarks. Fourth, it considers crude oil price in both real and nominal terms.

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International Journal of Energy Sector Management, vol. 14 no. 4
Type: Research Article
ISSN: 1750-6220

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Article
Publication date: 15 September 2021

Samuel Oludimu and Adewale Andrew Alola

A reflection on some supposed oil exporting states constantly reminds of the (in) validity of the resource curse hypothesis and environmental consequences of oil

Abstract

Purpose

A reflection on some supposed oil exporting states constantly reminds of the (in) validity of the resource curse hypothesis and environmental consequences of oil exploration. In Africa, especially the case of Nigeria, the argument has remained whether the country's voluminous deposit of crude oil has positively affected the livelihood of the people. The study aims to examine the impact of oil production on the income level in Nigeria.

Design/methodology/approach

In this context, the study first examined validity of Dutch disease in Nigeria, thus providing a foundation to further establish the resource curse hypothesis. As such, the impact of crude oil production (CRUDE), square of crude oil production (CRUDESQ), crude oil reserves (RESERVES) and population (POP) on economic growth over the period of 1980–2018 is examined through the combination of autoregressive distributed lag (ARDL), fully-modified ordinary least square (FMOLS) and canonical cointegration regression (CCR) methods.

Findings

While the study revealed the existence of Dutch disease in Nigeria, the resource curse hypothesis is also valid. However, the study found that the resource curse hypothesis in Nigeria can be over-turned when the CRUDE attains a certain maximum threshold, i.e. when crude oil output is doubled over time. In addition, either of crude RESERVES or oil rent (RENT) is seen as a limiting factor to economic growth while POP poses a positive and desirable impact on the country's economic development.

Originality/value

Thus, the implication of a U-shaped relationship between oil production and income level is that Nigeria's natural resources exploration could be employed to over-turn the potential of resource curse hypothesis by increasing exploration while the sources of leakages and misappropriation of the oil revenues are deliberately mitigated. Other useful socio-economic policies were proposed for the Government.

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Management of Environmental Quality: An International Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1477-7835

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Book part
Publication date: 26 April 2011

Helen Xu, Eric C. Lin and John W. Kensinger

Previous studies show that crude oil is negatively correlated with stocks but has almost the same rate of return as stocks, and so adding crude oil into a portfolio with…

Abstract

Previous studies show that crude oil is negatively correlated with stocks but has almost the same rate of return as stocks, and so adding crude oil into a portfolio with equities can provide significant diversification benefits for the portfolio. Given the diversification benefit of crude oil mixed with equities, we examine the value effect of crude oil derivatives transactions by oil and gas producers. Differing from traditional corporate risk management literature, this study examines corporate derivatives transactions from the shareholders' diversification perspective. The results show that crude oil derivatives transactions by oil and gas producers do impact value. If oil and gas producing companies stop shorting crude oil derivatives contracts, company stock prices increase significantly. In contrast, if oil and gas producing companies initiate short positions in crude oil derivatives contracts, stock prices tend to drop (still significant, but less so). Thus, hedging by producers is not necessarily good. Transaction limitation is shown to be one of the possible sources of the value effect of corporate derivatives transactions.

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Research in Finance
Type: Book
ISBN: 978-0-85724-541-0

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Energy Economics
Type: Book
ISBN: 978-1-83867-294-2

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Article
Publication date: 8 February 2011

Zhuo Li and Hui Zhao

The purpose of this paper is to re‐examine the structural origins of international crude oil price fluctuation.

Abstract

Purpose

The purpose of this paper is to re‐examine the structural origins of international crude oil price fluctuation.

Design/methodology/approach

The paper establishes a structural vector autoregression model based on the generalized supply and demand analysis of crude oil price fluctuation and performance the structural decomposition of price shocks with impulse response analysis of those factors.

Findings

It is found that four kinds of structural shocks derived from the generalized supply and demand analysis are the essential determinants of crude oil prices fluctuation. On one hand, similar to Kilian's results, the supply side shocks – both the exogenous geopolitical ones and other oil supply shocks have little influence. Whereas, the demand side shocks – both the aggregate demand shock and the oil market specific demand shock have prominent effects. On the other hand, with the expanded sample range, it is found that the dynamic characteristic of the impulse response of oil price to demand side factors is not only incompatible with the basic economic theory, but also clashes with Kilian's statement based upon his research. It is conjured that the incompatibility comes from the ignorance of the finer decomposition of demand side factors. To decompose those demand side factors further, the US dollar liquidity was added into the model. The results show that the impact of US dollar liquidity on the fluctuation of oil prices cannot be ignored. The argument that ascribes the soaring international crude oil price to China's economic growth lacks theoretical and empirical evidence.

Originality/value

The paper contributes marginally to the research on the structural origins of international crude oil price fluctuation and sheds light on the possibility of finer decomposition of demand side oil shocks.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 4 no. 1
Type: Research Article
ISSN: 1754-4408

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Article
Publication date: 15 February 2019

Vladimir Pavlovich Klepikov and Vladimir Vladimirovich Klepikov

This paper aims to analyse the key trends in oil delivery and production and evaluate the capacities of crude oil transportation systems in the Western European region.

Abstract

Purpose

This paper aims to analyse the key trends in oil delivery and production and evaluate the capacities of crude oil transportation systems in the Western European region.

Design/methodology/approach

To meet these goals, qualitative data analysis was used to assess the contribution of countries in the region to the total crude oil production and delivery, the changes in concentration of crude oil deliveries and refineries’ capacities, the capabilities of the regional crude oil transportation system and the trends in crude oil supplies and processing from 2005 to 2015.

Findings

The study established that from 2013 to 2015 oil supply to the region’s refineries increased and generated additional stress on the transportation and refining infrastructure.

Research limitations/implications

This study examined the aggregate values of crude oil production, crude oil deliveries and refining capacities. In practice, different refineries are set to process certain types of crude oil. It is possible to use the described approach with a certain crude oil grade.

Practical implications

When developing the programmes for crude oil supply to refineries, it is vital to take into account the capacities of refineries and the capabilities of the crude oil transportation systems.

Originality/value

The study suggests that the region’s infrastructure has the necessary reserves to operate for the next few years without additional investments.

Details

International Journal of Energy Sector Management, vol. 13 no. 2
Type: Research Article
ISSN: 1750-6220

Keywords

Content available
Article
Publication date: 1 February 2004

Abstract

Details

Disaster Prevention and Management: An International Journal, vol. 13 no. 1
Type: Research Article
ISSN: 0965-3562

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