Unit Root Properties of Crude Oil Spot and Futures Prices

Abstract

In this paper we examine whether WTI and Brent crude oil spot and futures prices (at one, three and six months to maturity) contain a unit root with one and two structural breaks, employing weekly data over the period 1991-2004. To realize this objective we employ Lagrange Multiplier (LM) unit root tests with one and two endogenous structural breaks proposed by Lee and Stazicich (2003, 2004). We find that each of the oil price series can be characterized as a random walk process and that the endogenous structural breaks are significant and meaningful in terms of events that have impacted on world oil markets.Crude oil prices, Unit root, Stationarity