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Crude oil prices have declined by 58% from June 2014 to January 2015. This sharp negative departure from trend takes place three years after the 2011 collapse of gold prices and the start of the commodities´ bear market which has seen an overall reduction of commodity prices by 46% per cent.
The oil price has reached a five-month high, with WIT oil futures breaking through the $55 per barrel level for the first time this year at the same time as the benchmark for crude oil volatility drops to 37 volatility points, reaching levels not seen since December 2014. Changes in crude oil price and volatility can be justified in terms of supply fundamentals namely the fall in US oil rigs, the slowdown of crude oil inventory build in the US, and increased concerns regarding the conflict in the Middle East. The recent run up in prices has led to renewed optimism in the energy sector. The main question for traders now is whether the period of bearish prices and increasing volatility is coming to an end.
Are correlations across assets constant for every time interval?
Let´s analyze this question taking two series in the energy sector: kerosene and crude oil prices.