Oil and Agricultural Commodity Markets of Pakistan: Looking for a Preferable Trading Avenue

The primary objective of this study is to find out the impact of oil price on futures and spot markets of agricultural products in Pakistan. Secondly, the study compares the research findings to suggest less oil price sensitive market for trading agricultural products in Pakistan. Futures (1 and 2 months futures) and spot prices of rice and sugar are taken as proxies for prices of agricultural products representing respective markets. Oil price sensitivity analysis is conducted via Vector Error Correction model. Further, Granger Causality approach is used for the causality analysis. Futures (1 and 2 months futures) and spot prices of rice and sugar are taken as proxies for prices of agricultural products representing derivatives and spot markets respectively. Time series data constituting 7 variables of 60 observations is analyzed from October 2012 to October 2017. The results are then subject to comparison and discussed.