Impact of Crude Oil Price and its Volatility on Natural Rubber Price: Evidence from Indian and International Markets

The development landscape of India is greatly affected by the plantation sector of the country. It provides a large number of job opportunities and livelihood to the marginal and small farmers in rural India. Rubber is one of the major plantation commodities in India. Presently, India occupies the sixth position in terms of the production of natural rubber (NR) worldwide. In the present era of globalisation, the rubber price in India moves in tandem with international markets, and this has resulted in the simultaneous impact of various domestic and international factors on rubber prices. Price instability of NR has become a major source of concern for producers and consumers in India equally. During the last twelve years, the price of natural rubber had not been able to break its all-time high (ATH), and it has fluctuated over a wider range after the fall from ATH. In this backdrop, the present paper attempts to capture the influence of crude oil price and its volatility on the price of rubber in the Indian and international markets. The findings of the study confirm the existence of a long-run equilibrium relation between crude oil and natural rubber prices, and the study concludes that the crude oil price can be considered as an important piece of information as far as the prediction of fluctuations of rubber price is concerned. Our findings also suggest a relatively muted transmission of oil price volatility to rubber price returns, highlighting an asymmetry between price-level comovement and volatility interdependence in the Indian context.