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Does something change in the oil market with the COVID-19 crisis?

Author

Listed:
  • Dan Zhang
  • Arash Farnoosh
  • Frédéric Lantz

Abstract

This paper examines the price discovery of three international crude oil futures markets (WTI, Brent, INE) before and after the outbreak of the COVID-19 with the application of the information share and component share model. Our study shows that there is a structural break of the date of March 6, 2020, in each price series with Zivot and Andrew's unit root tests. Using Gregory and Hansen cointegration tests, cointegration relationships with the structural break in May 2020 are detected. According to results of Information Share (IS) and Component Share (CS) measures Brent futures price mainly plays a leading role in WTI and INE futures prices and occupies an absolutely dominant position all the time in the three crude oil futures markets systems. In the post-covid period, the price discovery efficiency of INE has been improved slightly but is still weak compared with other two markets. After the outbreak of COVID-19, the dominant position in price contribution in the relationship with INE has transferred from Brent to WTI. These findings offer practical implications for regulators and portfolio risk managers during the unprecedented uncertainty period provoked by the COVID-19 pandemic.

Suggested Citation

  • Dan Zhang & Arash Farnoosh & Frédéric Lantz, 2022. "Does something change in the oil market with the COVID-19 crisis?," International Economics, CEPII research center, issue 169, pages 252-268.
    • Handle: RePEc:cii:cepiie:2022-q2-169-16
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    File URL: https://www.sciencedirect.com/science/article/pii/S2110701722000087
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    Citations

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    Cited by:

    1. Mishra, Brajesh & Ghosh, Sajal & Kanjilal, Kakali, 2023. "Policies to reduce India's crude oil import dependence amidst clean energy transition," Energy Policy, Elsevier, vol. 183(C).
    2. Mercan Hatipoglu, 2023. "What Determined Stock Returns in Turkey from 1990 to 2022: Evidence from Structural Break Regression," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 73(73-1), pages 185-202, June.
    3. Lin, Jie & Xiao, Hao & Chai, Jian, 2023. "Dynamic effects and driving intermediations of oil price shocks on major economies," Energy Economics, Elsevier, vol. 124(C).

    More about this item

    Keywords

    Oil market; Price discovery; Structural break;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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