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The Use of NYMEX Options to Forecast Crude Oil Prices

James A. Overdahl and H. Lee Matthews

Year: 1988
Volume: Volume 9
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol9-No4-7
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Abstract:
The recent introduction of traded options on crude oil futures contracts at the New York Mercantile Exchange (NYMEX) gives energy economists a new tool for forecasting the price of crude oil. Since the pricing of these options requires that market participants assess the probability distribution of future crude oil prices, a properly specified model of option pricing can be used to "back out" this assessment from observed option prices.



Risk Premiums and Efficiency in the Market for Crude Oil Futures

Richard Deaves and Itzhak Krinsky

Year: 1992
Volume: Volume 13
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No2-5
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Abstract:
The New York Mercantile Exchange's Crude Oil futures contract is investigated for the existence and nature of risk premiums and informational efficiency. During 1983-90, there is some evidence that short-term premiums were positive and covaried with recent volatility. As for efficiency, we find nothing inconsistent with weak-form efficiency, but some apparent violations cf semi-strong efficiency. We argue that, for a number of reasons, such rejections should be interpreted with caution.



Business Cycles and the Behavior of Energy Prices

Apostolos Serletis and Vaughn Hullernan

Year: 1994
Volume: Volume15
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No2-7
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Abstract:
This paper tests the theory of storage-the hypothesis that the marginal convenience yield on inventory falls at a decreasing rate as inventory increases in energy markets (crude oil, heating oil, and unleaded gas markets). We use the Fama and French (1988) indirect test, based on the relative variation in spot and futures prices. The results suggest that the theory holds for the energy markets.



Regional Limitations on the Hedging Effectiveness of Natural Gas Futures

Emile J. Brinkmann and Ramon Rabinovitch

Year: 1995
Volume: Volume16
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No3-5
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Abstract:
This paper examines the extent to which limitations in the transportation system for the natural gas market in the United States narrows the effectiveness of the NYMEX natural gas future contract as a hedging instrument and why a second contract with a different delivery point was approved during 1995. We find that the NYMEX contract is an effective hedging instrument for gas sold into pipelines for consumption in southern, eastern and midwestern states, but does, not provide an effective hedge for gas sold for Rocky Mountain and West Coast states.



Implied Volatility of Oil Futures Options Surrounding OPEC Meetings

Stephen M. Horan, Jeffrey H. Peterson, and James Mahar

Year: 2004
Volume: Volume 25
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No3-6
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Abstract:
This study examines implied volatility from options on crude oil futures surrounding OPEC meetings. Studies suggest that the implied volatility embedded in option prices should drift upward prior to scheduled information releases and drop afterward. As predicted, volatility drifts upward as the meeting approaches and drops by three percent after the first day of the meeting and by five percent over a five-day window period. Surprisingly, highly visible bi-annual conferences experience little drop in volatility. Rather, the most pronounced decline in volatility is associated with meetings of the Ministerial Monitoring Committee, which makes production recommendations to the larger conference. The results have implications for the debate about whether OPEC influences oil prices and provide an explanation for previously documented return anomalies in crude oil futures surrounding OPEC meetings.



The Supply of Storage for Natural Gas in California

Rocío Uría and Jeffrey Williams

Year: 2007
Volume: Volume 28
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No3-3
View Abstract

Abstract:
Do natural gas storage decisions in distant California respond to NYMEX futures price spreads? Daily data about flows into and out of storage facilities in California over 2002-2006 and daily spreads on NYMEX are used to investigate whether the net injection profile is consistent with the supply-of-storage curve first observed by Working for wheat. Storage decisions in California do seem to be influenced by a price signal that combines the intertemporal spread and the locational basis between California and the Henry Hub, in addition to strong seasonal and weekly cycles that determine net injections to a considerable extent. The timing and magnitude of the price response differ across storage facilities. Regulatory requirements and operational constraints also limit the response to short-lived arbitrage opportunities.





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