A new academic study from the Bauer College of Business at the University of Houston concludes the unprecedented volatility in the oil markets in late 2008 and early 2009 was predominantly the product of market fundamentals during a time of extreme stress.
The study, An Evaluation of the Performance of Oil Price Benchmarks during the Financial Crisis, was done by Craig Pirrong, Professor of Finance and Energy Markets Director for Global Energy Management Institute, Bauer College of Business at the University of Houston.
It analyzed the behavior of two benchmark oil futures contracts during the period of financial crisis following the collapse of Lehman Brothers. It concluded that futures markets prices generally reflected the realities in the physical market where oil is bought, sold and stored. "The behavior of the WTI futures contract during the financial crisis reflected the truly unprecedented conditions prevalent during that period, which was reflected in market volatility and prices," Pirrong said. The study also found no instances where the prices set in financial markets had gotten out of whack with the most directly related cash markets.....Read the entire article.
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