THE IMPACTS OF OIL PRICE VOLATILITY ON STRATEGIC INVESTMENT OF OIL COMPANIES IN NORTH AMERICA, ASIA, AND EUROPE

Zhu, Qianqian; Singh, Gurcharan

doi:10.1590/0101-7438.2016.036.01.0001

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Articles • Pesqui. Oper. 36 (1) • Jan-Apr 2016 • https://doi.org/10.1590/0101-7438.2016.036.01.0001 copy

THE IMPACTS OF OIL PRICE VOLATILITY ON STRATEGIC INVESTMENT OF OIL COMPANIES IN NORTH AMERICA, ASIA, AND EUROPE

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

The crude oil price volatility plays an essential role for the oil companies when making a strategic investment decision. Different economic and political backgrounds could drive oil companies in North America, Asia, and Europe to make different strategic investment decision. Real options methodology is applied in analyzing the impact of oil price volatility on strategic investment of oil companies in the three regions. The empirical results show that the regional differences do exist, where the relationship between oil price volatility and oil companies' strategic investment in North America shows a reverse U shaped curve; meanwhile in Asia is exhibits a U shaped curve; while that in Europe shows a positive correlated linear relationship. These different regional results of oil price uncertainty could provide companies and governments essential information to make investment and policy decisions based on the according regions.

Keywords:
strategic investment; oil price volatility; and real options

Area	Variables	Mean	Std. dev.	Min	Max
	I/K	0.048	0.010	0.037	0.067
	cf	0.098	0.110	0.033	0.421
America	Q	-0.386	0.142	-0.556	-0.196
	o	39.588	11.072	29.041	63.105
	o²	1678.609	995.572	843.345	3982.263
	I/K	0.070	0.022	0.024	0.094
	cf	0.143	0.017	0.118	0.171
Asia	Q	0.326	0.261	-0.019	0.653
	o	36.934	8.956	27.615	51.405
	o²	1429.682	710.047	762.566	2642.510
	I/K	0.077	0.040	0.000	0.126
	cf	0.126	0.036	0.091	0.184
Europe	Q	0.691	0.460	-0.016	1.408
	o	36.834	8.956	27.615	51.405
	o²	1429.682	710.047	762.566	2642.510

Area		I/K	cf	Q	o
	I/K	1
	cf	0.166	1
America	Q	0.030	0.287	1
	o	0.467	-0.244	-0.133	1
	o²	0.287	-0.239	-0.051	0.994	1
	I/K	1
	cf	0.605	1
Asia	Q	0.630	0.814	1
	o	-0.217	-0.364	-0.374	1
	o²	-0.179	-0.380	-0.364	0.997	1
	I/K	1
	cf	0.074	1
Europe	Q	-0.615	0.441	1
	o	0.019	-0.480	-0.075	1
	o²	0.051	-0.498	-0.115	0.997	1

Estimator	I/K	cf	Q	o	o²
America	-0.268	0.723	0.807**	0.103	0.121
	(0.201)	(0.586)	(0.002)	(0.762)	(0.725)
Asia	0.771***	0.722**	0.508	0.206	0.211
	(0.000)	(0.010)	(0.130)	(0.555)	(0.545)
Europe	0.994***	0.244	0.643**	0.206	0.211
	(0.000)	(0.465)	(0.031)	(0.555)	(0.545)

	Model 1	Model 2	Model 3
Q_t	0.055**	0.068***	0.0399
	(0.019)	(0.000)	(0.101)
Q(t− 1)	-0.008	-0.054***	0.020
	(0.611)	(0.000)	(0.501)
cf	0.035**	0.060***
	(0.015)	(0.001)
o	0.002***	0.001***	0.003***
	(0.001)	(0.000)	(0.002)
o²	-1.73E-05**		-2.77E-05**
	(0.028)		(0.021)
Wald X square	69.500***	45.707***	42.573***
	(0.000)	(0.000)	(0.000)
Hansen J	3.022	3.295	3.470
	(0.554)	(0.654)	(0.628)
AB AC(1)	-0.771***	-0.411	-0.612**
	(0.007)	(0.146)	(0.031)
AB AC(2)	0.429***	-0.116	0.316**
	(0.007)	(0.146)	(0.031)

	Model 4	Model 5	Model 6
Q_t	0.393**	0.357**	0.623***
	(0.020)	(0.037)	(0.001)
Q_t−1	-0.022*	0.006	0.013
	(0.066)	(0.274)	(0.288)
cf	0.341	-0.137
	(0.209)	(0.0260)
o	0.585**	0.476**
	(0.026)	(0.021)
o²	-0.004**	-2.12E-05	0.001***
	(0.042)	(0.859)	(0.000)
Q_t	5.44E-05**		-1.85E-05***
	(0.042)		(0.001)
Wald X square	13.730***	85.858***	2.557*
	(0.000)	(0.000)	(0.100)
Hansen J	3.034	2.729	2.770
	(0.386)	(0.0604)	(0.735)
AB AC(1)	-0.305	-0.413	-0.269
	(0.283)	(0.146)	(0.344)
AB AC(2)	-0.193	-0.007	0.060*
	(0.432)	(0.348)	(0.062)

	Model 7	Model 8	Model 9
Q_t	0.396**	0.341***	0.342***
	(0.044)	(0.004)	(0.009)
Q_t−1	0.009	0.0153	0.024*
	(0.523)	(0.195)	(0.075)
cf	-0.023	-0.026	-0.023
	(0.230)	(0.117)	(0.211)
o	0.229	0.0120
	(0.174)	(0.129)
o²	0.0004	0.002***	0.002**
	(0.795)	(0.001)	(0.024)
Q_t	1.80E-05		-4.22E-06
	(0.431)		(0.627)
Wald X square	3.059*	3.405*	0.301
	(0.080)	(0.065)	(0.583)
Hansen J	3.156	3.308	3.258
	(0.368)	(0.508)	(0.516)
AB AC(1)	-0.527*	-0.389	-0.302
	(0.064)	(0.172)	(0.289)
AB AC(2)	-0.119	-0.131	-0.297
	(0.164)	(0.348)	(0.306)

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