Oil prices: Interrelations and Spread Trading

Oil is the most widely traded commodity worldwide. Its importance is reflected in the large share in media attention where the development of oil prices are reported alongside stock indexes and foreign exchange rates.

The media report on “the oil price“ as if there is one price for this heterogeneous commodity. Clearly this is not the case but how does pricing of various crude grades and oil products at various locations relate to each other?

This question is analysed in this paper by utilizing econometric methods. Also the industry practice of spread trading, which is based upon these interrelations, is highlighted.

Oil prices: Interrelations and Spread Trading