Forecasting Stochastic Volatility Characteristics for the Financial Fossil Oil Market Densities

This paper builds and implements multifactor stochastic volatility models for the international oil/energy markets (Brent oil and WTI oil) for the period 2011–2021. The main objective is to make step ahead volatility predictions for the front month contracts followed by an implication discussion for the market (differences) and observed data dependence important for market participants, implying predictability. The paper estimates multifactor stochastic volatility models for both contracts giving access to a long-simulated realization of the state vector with associated contract movements. The realization establishes a functional form of the conditional distributions, which are evaluated on observed data giving the conditional mean function for the volatility factors at the data points (nonlinear Kalman filter). For both Brent and WTI oil contracts, the first factor is a slow-moving persistent factor while the second factor is a fast-moving immediate mean reverting factor. The negative correlation between the mean and volatility suggests higher volatilities from negative price movements. The results indicate that holding volatility as an asset of its own is insurance against market crashes as well as being an excellent diversification instrument. Furthermore, the volatility data dependence is strong, indicating predictability. Hence, using the Kalman filter from a realization of an optimal multifactor SV model visualizes the latent step ahead volatility paths, and the data dependence gives access to accurate static forecasts. The results extend market transparency and make it easier to implement risk management including derivative trading (including swaps).

Nigeria’s upstream petroleum industry anti-corruption legal framework: the necessity for overhauling and enrichment

Purpose This study aims to investigate why anti-corruption statutes are not efficient in Nigeria’s upstream petroleum industry. Design/methodology/approach This study is a doctrinal legal research that embraces a point-by-point comparative methodology with a library research technique. Findings This study reveals that corruption strives on feeble implementation of anti-corruption legal regime and the absence of political will in offering efficient regulatory intervention. Finally, this study finds that anti-corruption organisations in Nigeria are not efficient due to non-existence of the Federal Government’s political will to fight corruption, insufficient funds and absence of stringent implementation of the anti-corruption legal regime in the country. Research limitations/implications Investigations reveal during this study that Nigerian National Petroleum Corporation (NNPC) operations are characterised with poor record-keeping, lack of accountability as well as secrecy in the award of oil contracts, oil licence, leases and other financial transactions due to non-disclosure or confidentiality clauses contained in most of these contracts. Also, an arbitration proceeding limit access to their records and some of these agreements under contentions. This has also limited the success of this research work and generalising its findings. Practical implications This study recommends, among other reforms, soft law technique and stringent execution of anti-corruption statutes. This study also recommends increment in financial appropriation to Nigeria’s anti-corruption institutions, taking into consideration the finding that a meagre budget is a drawback. Social implications This study reveals that corruption strives on feeble implementation of anti-corruption legal regime and the absence of political will in offering efficient regulatory intervention. Corruption flourishes due to poor enforcement of anti-corruption laws and the absence of political will in offering efficient regulatory intervention by the government. Originality/value The study advocates the need for enhancement of anti-corruption agencies' budgets taking into consideration the finding that meagres budgets are challenge of the agencies.

Factors influencing the structure of the Russian companies' capital

Subject. In the uncertain market environment, the optimal structure of capital is getting more important because it influences the competitiveness of a firm, its financial sustainability and solvency and, consequently, a success. Herein we dwell upon the hypothesis presuming the existence of capital structure determinants. Objectives. We review empirical studies on the subject, analyze determinants of the Russian companies’ capital structure. Methods. The study is based on the systems approach and methods of statistical analysis. Results. It is necessary to monitor how capital is shaped and formed. We investigated proceedings on factors influencing the capital structure and discovered relevant hypotheses, carrying out the correlation analysis of such factors. Conclusions and Relevance. It is especially important to examine factors influencing the capital structure, and find the appropriate format for the economy struggling through the crisis. The coronavirus pandemic unavoidably reshapes the global economic landscape, which has already been under the pressure of deglobalization processes (trade wars, repudiation of oil contracts). The correlation analysis did not reveal any relationship of the variables in question (the company’s age, ROE, ROA, MOEX, key rate, GDP, PPI) and the capital structure. Further research should be devoted to other factors and consider the unreasonableness and psychological background of managers’ behavior who make decisions concerning the capital structure.

Arbitration of oil contracts in oil-producing Arab Countries

This study investigates the most important legal matters of arbitration of Arab oil contracts. It has focused on the independent nature of arbitration, and the distinguished characteristics which make arbitration the most preferable means to settle international economic disputes. The study as well as sheds light on the arbitration agreement which included in the oil contracts in a way that excludes this agreement from the legal rules that usually prevent such agreements from developing in scope and content on the one hand, whereas on the other hand the study takes a look on the arbitration tribunal resulting from the arbitration agreement that included in the oil contracts which have special characteristics that distinguishes them from any other contracts in other economical and trading ventures. This study has concluded that it is better for the disputes resulting from the oil contracts to be resolved via arbitration without necessarily arbitrated affecting the judicial immunity function. additionally, settlement of disputes in issuing the arbitration decision should be voluntarily implemented by the two parties in conflict. Finally, the researcher recommends arbitration as the only viable tool for settling conflicts/disputes of oil contracts in oil producing Arab nations because it’s the fastest, most reliable, least expensive and time saving method of conflict resolution.

The Possibility of Nationalization by the Kurdistan Regional Government of Iraq under the Light of Signed Petroleum Contracts and Establishment of Kurdistan National Oil Company (KNOC)

In the past 20 years, Kurdistan Regional Government (KRG) of Iraq has signed hundreds of Production Sharing Contracts with many international oil companies to expand investment and develop its oil sector. According to the applicable laws in the region, in particular Oil and Gas Law No.22 of 2007, government shall work to establish Kurdistan National Oil Company (KNOC) to take charge of petroleum operations. Meanwhile, according to the same law, the duration of petroleum production sharing contracts shall not exceed 20 years with the possibility of five years extension. Despite the fact that KRG is abided to many legal obligations to share the produced oil under production sharing contracts, there is always a question of whether KRG will be able to administer its oil industry and what will be the future of these oil contracts? This paper argues that KRG cannot nationalize (by appropriating the whole oil industry and assets of foreign oil companies) its petroleum sector even after the establishment of KNOC as there are many legal terms preventing it from nationalizing the oil industry besides the lack of technical ability to run the sector without the direct support from foreign oil companies. Moreover, the paper also discusses different possibilities after the end of oil contracts with foreign international companies; Does KRG continue with the current contractual form or it will shift to other forms of contract such as service contract to develop oil industry in the region? It suggests that the best practice for the government is to institutionalize its oil sector with receiving direct support from oil companies. The establishment of KNOC is considered to be an effective step towards institutionalization of oil sector in the Iraqi Kurdistan Region.

TIME-VARYING MARKET PRICE OF RISK AND AUTOREGRESSIVE ERROR STRUCTURE OF OIL PRICES

In this paper we investigate the inclusion of a time-varying market price of risk in oil price factor models. Additionally an autoregressive error structure is adopted to filter this property of financial series. We use the Schwartz and Smith model, which is well established in the literature on commodity prices. The analysis is easily extended to different types of factor models. The empirical application considered the future oil contracts traded on the NYMEX. We find that considering a time-varying market price of risk and the autoregressive structure improves the fit of the empirical data.

The Function of the Transnational Chinese Contract

This article focusses on Chinese contractual practice in the energy sector and related sectors – principally in China’s inbound and outbound investments in the petroleum sector as well as in other energy-related financing and infrastructure construction contracts. Its concern is with the drafting of Belt and Road contracts, especially where this may lead to contract ‘internationalisation’. The article also discusses the interplay between Chinese contracts and treaties. It asks if there is Chinese receptiveness to international principles in seeking to protect the rights of Chinese as well as foreign parties. A preliminary finding is that there is an asymmetry between what Chinese upstream oil contracts do in protecting foreign ownership interests, even to the point of evincing Chinese acceptance of the ‘internationalisation’ of contracts, and the intergovernmental work done through negotiated treaty terms to protect Chinese investments abroad.