The dynamic linkages between crude oil and natural gas markets |
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| Affiliation: | 1. Department of Banking and Finance, Monash University, Caulfield Campus, PO Box 197, Caulfield East, VIC 3145, Australia;2. Cameron School of Business, University of North Carolina—Wilmington, Wilmington, NC, USA;3. School of Business and Institute for International Integration Studies (IIIS), The Sutherland Centre, Level 6, Arts Building, Trinity College, Dublin 2, Ireland;1. Department of Finance, Universiti Tunku Abdul Rahman, Jalan Universiti, Malaysia;2. Department of Economics and Administration, Universiti Malaya, Malaysia;3. Department of Econometrics and Business Statistics, Monash University, Australia;4. Finance Discipline Group, University of Technology, Sydney, Australia;5. School of Economics and Finance, Massey University, New Zealand;1. Department of Banking and Finance, Monash University, Caulfield Campus, PO Box 197, Caulfield East, Victoria 3145, Australia;2. Department of Business and Economics, University of Passau, Innstraße 27, 94030 Passau, Germany;3. CEU Business School, Central European University, Frankel Leó út 30-34, Budapest 1023, Hungary;4. Judge Business School, University of Cambridge, Trumpington Street, Cambridge, CB2 1AG, United Kingdom;1. Business School, Hunan University, Changsha 410082, China;2. Center for Resource and Environmental Management, Hunan University, Changsha 410082, China;3. IPAG Business School (IPAG Lab), 184 Boulevard Saint-Germain, 75006 Paris, France;4. Université Paris 8 (LED), 2 rue de la Liberté, 93526 Saint-Denis Cedex, France |
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| Abstract: | The time varying price spillovers between natural gas and crude oil markets for the period 1994 to 2014 are investigated. Contrary to earlier research, we show that in a large part of our sample the natural gas price leads the price of crude oil with price spillover effects lasting up to two weeks. This result is robust to a battery of tests including out-of-sample forecasting exercises. However, after 2006, we detect little price dependencies between these two energy commodities. These findings arise due to a conjunction of both demand and supply-side shocks arising from both natural and economic events, including Hurricane Katrina, the Tohoku earthquake and the Global Financial Crisis, as well as infrastructure and technological improvements. The increased use of new technologies such as hydraulic fracking for the extraction of gas and oil in particular affected supply in the latter part of the study. We conclude that the long term relation present in the early part of the sample has decoupled, such that price determination of these two energy sources is now independent. |
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