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Issue Q2-3 2011  
Macro factors in oil futures returns  
Yannick Le Pen
Benoît Sévi
We investigate the macro factors that can explain the monthly oil futures return for the NYMEX WTI futures contract for the time period 1993:11 to 2010:03. We build a new database of 187 real and nominal macroeconomic variables from developed and emerging countries and resort to the large factor approximate model to extract 9 factors from this dataset. We then regress crude oil return on several combinations of these factors. Our best model explains around 38% of the variability of oil futures return. More interestingly, the factor which has the largest influence on crude oil price is related to real variables from emerging countries. This result confirms the latest finding in the literature that the recent evolution in oil price is attributable to change in supply and demand conditions and not to the large increase in trading activity from speculators Abstract

Crude Oil Futures ; Large Approximate Factor Models ; Macro Determinants ; Keywords
C22 ; C32 ; G15 ; E17 ; JEL classification
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