Dependence structures in the oil market and the financialisation of commodities

The process of financialisation of commodity markets deserves considerable attention as it has led to an increasing integration within the commodity markets and between the commodity and stock markets. This process has also aected the oil market through the introduction of crude oil as an alternative asset class in investment portfolios. An important aspect to analyse in relation to financialisation is the interdependence in the sentiment of investors trading in the dierent markets. In this connection, we used an entropy approach to study the impact of the oil volatility index (OVX), a commonly used indicator to mirror the investors’ sentiment in the United States oil market, on the spot variances of West Texas Intermediate (WTI) and Brent. The results show that sentiment is a driving factor of the uncertainty in the corresponding spot market and one of the explanations for this result is attributed to the process of financialisation. We also look at another issue related to the market of crude oil which concerns the price relationship between WTI and Brent. The decoupling and recoupling of the two prices is investigated using the dynamic time warping (DTW) algorithm. This algorithm is applied in a dierent way than in the literature, allowing for a methodology to identify decoupling along with two new indices based on DTW. We also analyse the dynamics of oil prices in relation to that of food prices, since many countries rely on food and oil imports. In this connection, we use tools from Wavelet analysis to analyse the oil-food price co-movement and its determinants in both time and frequency domains. Our results show that the local correlation between food and oil is only apparent. This is mainly due to the activity of commodity index investments, suggesting the strong impact of financialisation.