What drives crude oil market movements? : An impact study of the WTI and Brent crude oil relationship with transatlantic macroeconomic news announcements

Abstract

This doctoral thesis is based on the assumption that certain United States (US) and Eurozone (EZ) macroeconomic news announcements correlate with a temporary volatility increasing effect on the price development of the light crude oil benchmarks WTI (West Texas Intermediate) and ICE (Intercontinental Exchange) Brent Blend. A total of 64 macroeconomic news was implemented in the study. Firstly, the main objective of the project was to identify those US and EZ news releases that significantly impact crude oil price development. Secondly, news ranking lists were generated and thirdly a screening for further correlations of WTI and Brent Blend with global commodity price changes, stock price changes of oil companies and leading indices was performed utilizing hierarchical correlation cluster-map analysis. The price data were based on 1min bid closing prices and were resampled to 15min mean, providing the basis for a 1h rolling standard deviation. The variables (raw price data and macroeconomic indicators) were retrieved from financial and public data providers and preprocessed appropriately prior to regression analysis. In order to test the research assumptions, data modeling was performed in a data science process implementing simple and multiple ordinary least squares regression analysis. Newey-West robust standard errors were applied to correct and overcome heteroskedasticity and autocorrelation effects. The implemented methodology successfully revealed interactions between certain news releases and increased crude oil price volatility. In simple OLS regression 29 US and 13 EZ news announcements were identified to impact WTI volatility and 21 US and 10 EZ news showed effects on Brent Blend. In multiple OLS regression 23 US and 5 EZ news were found to correlate with WTI. ICE Brent Blend interacted with 19 US and 2 EZ news announcements.