Strategic interactions and price dynamics in the global oil market

This paper focuses on oil market dynamics through the investigation of oil systematic risk and oil risk premium dynamics over the period 1997-2012, which includes several different economic episodes, enabling us to capture a considerable number of statistical properties for oil prices. Interestingly, unlike previous studies, the authors retained data for several developed and emerging oil markets and used different oil prices in order to provide a comprehensive and wide-ranging vision of oil price dynamics. To this end and in order to take eventual time variation and asymmetry in oil price dynamics into account, the authors applied recent econometrics tests associated with the ADCC-GARCH class of model. This modelling enabled us to appropriately specify the dynamics of oil conditional variance and time-varying oil risk premium. Accordingly, this study offers three interesting findings. First, the hypotheses of asymmetry and time variation in oil risk premia are not rejected. Second, the recent global financial crisis has increased systematic oil risk and oil risk premia in different regions. Finally, oil risk premia in emerging countries are significantly higher than those in developed countries, suggesting the inclusion of additional premium induced by political instability and geopolitical changes in emerging economies.

The article deals with the leading participants of the global oil market and examines its basic parameters in 2002. The authors point out such demand-creating countries as the USA, the EU15 and the Asia Pacific, discuss their specifics as oil-consuming countries and their ability to influence the global oil market. The supply is provided by OPEC countries, US oil corporations and partly independent oil producers.

The article analyzes the state of pricing in the oil market, examines topical issues of assessing the emerging factors of influence both on the domestic and foreign markets. Particular attention is paid to the issues of the emerging situation of supply and demand for oil and oil products, regulation of its production, storage, transportation, processing, formation of sales volumes and income from sales. Highlighted and disclosed the problem of price regulation in the aspects of finding and achieving flexible forms of negotiating prices for oil supply and oil sales, taking into account various options for the volume of oil production.