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ABSTRACT:

This paper examines the short- and long-term dynamic relationship between spot and forward oil prices. We highlight the finding that producers are bound by forward contracts for future deliveries of oil with forward prices which deprives them of any immediate increase in production and therefore have an effect on spot prices. We will process daily spot and futures prices data during the period from January 20, 2017 to December 13, 2021.The results of the causality test indicate that the relationship between spot and futures prices is bidirectional, which means that the causality is mutual. Indeed, in the short term, spot prices caused futures prices and vice versa in the medium and long term. In addition, spot oil prices have been affected by changes in the spot price at a minimal level. A spot price shock has an insignificant negative impact on oil futures prices while the impulse response of pot prices to a futures price shock was positive. Finally, we will find that the impact of extreme volatility in futures prices, when they reach their lowest level in history on April 20, 2020, on spot prices was insignificant. The results of this research contribute to the oil decision-making process.

KEYWORDS:

Oil market, Forward price, futures prices, Panel cointegration, Variance decomposition.

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