IDEAS home Printed from https://ideas.repec.org/a/eco/journ2/2016-02-9.html
   My bibliography  Save this article

How the Crude Oil Market Affects the Natural Gas Market? Demand and Supply Shocks

Author

Listed:
  • Narjes Zamani

    (Department of Economics, Keio University, Tokyo, Japan)

Abstract

In this paper, the global structural relationship between the prices of crude oil and natural gas is investigated using the recently introduced decomposition of the real price of crude oil by Kilian (2009). A four-variable structural vector autoregressive model (SVAR) for oil and natural gas markets is developed for this investigation. We find some evidence that the crude oil market affects the natural gas market through a combination of demand shocks rather than through oil supply shocks. The uncertainty about future oil supply causes precautionary demand in the oil market, which shifts to the natural gas market and increases the natural gas price as the primary substitute for oil. Meanwhile, global demand shocks influence both crude oil and natural gas prices, which leads to similar fluctuations in the prices of oil and natural gas. Consequently, demand shocks link oil and natural gas markets and produce similar changes in their prices

Suggested Citation

  • Narjes Zamani, 2016. "How the Crude Oil Market Affects the Natural Gas Market? Demand and Supply Shocks," International Journal of Energy Economics and Policy, Econjournals, vol. 6(2), pages 217-221.
    • Handle: RePEc:eco:journ2:2016-02-9
    as

    Download full text from publisher

    File URL: http://www.econjournals.com/index.php/ijeep/article/download/1958/1303
    Download Restriction: no
    File URL: http://www.econjournals.com/index.php/ijeep/article/view/1958/1303
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Peter R. Hartley & Kenneth B Medlock III & Jennifer E. Rosthal, 2008. "The Relationship of Natural Gas to Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 47-66.
    2. David J. Ramberg and John E. Parsons, 2012. "The Weak Tie Between Natural Gas and Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    3. Goncalves, Silvia & Kilian, Lutz, 2004. "Bootstrapping autoregressions with conditional heteroskedasticity of unknown form," Journal of Econometrics, Elsevier, vol. 123(1), pages 89-120, November.
    4. Brigida, Matthew, 2014. "The switching relationship between natural gas and crude oil prices," Energy Economics, Elsevier, vol. 43(C), pages 48-55.
    5. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    6. Stephen P. A. Brown & Mine K. Yucel, 2008. "What Drives Natural Gas Prices?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 45-60.
    7. Lance J. Bachmeier & James M. Griffin, 2006. "Testing for Market Integration: Crude Oil, Coal, and Natural Gas," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 55-72.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Narjes Zamani, 2016. "The Relationship between Crude Oil and Coal Markets: A New Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 6(4), pages 801-805.
    2. Hou, Chenghan & Nguyen, Bao H., 2018. "Understanding the US natural gas market: A Markov switching VAR approach," Energy Economics, Elsevier, vol. 75(C), pages 42-53.
    3. Nguyen, Bao H. & Okimoto, Tatsuyoshi, 2019. "Asymmetric reactions of the US natural gas market and economic activity," Energy Economics, Elsevier, vol. 80(C), pages 86-99.
    4. Indupurnahayu & Edhie Budi Setiawan & Lira Agusinta & Ryan Firdiansyah Suryawan & Prasadja Ricardianto & Mustika Sari & Sri Mulyono & Reza Fauzi Jaya Sakti, 2021. "Changes in Demand and Supply of the Crude Oil Market During the COVID-19 Pandemic and its Effects on the Natural Gas Market," International Journal of Energy Economics and Policy, Econjournals, vol. 11(3), pages 1-6.
    5. Jean Gaston Tamba & Salom Ndjakomo Essiane & Emmanuel Flavian Sapnken & Francis Djanna Koffi & Jean Luc Nsouand l & Bozidar Soldo & Donatien Njomo, 2018. "Forecasting Natural Gas: A Literature Survey," International Journal of Energy Economics and Policy, Econjournals, vol. 8(3), pages 216-249.
    6. Mukhtar Danladi Galadima & Abubakar Wambai Aminu, 2017. "Asymmetric cointegration and causality between natural gas consumption and economic growth in Nigeria," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2017(3), pages 59-71.
    7. Wood, Dallas & Larson, Justin & Jones, Jason & Galperin, Diana & Shelby, Michael & Gonzalez, Manuel, 2022. "World oil price impacts on country-specific fuel markets: Evidence of a muted global rebound effect," Energy Economics, Elsevier, vol. 111(C).
    8. Ali Jadidzadeh & Mobin Mirzababaei & Apostolos Serletis, 2022. "Oil Prices and the Hydrocarbon Markets: A Review," Energies, MDPI, vol. 15(17), pages 1-9, August.
    9. Toan Luu Duc Huynh & Muhammad Shahbaz & Muhammad Ali Nasir & Subhan Ullah, 2022. "Financial modelling, risk management of energy instruments and the role of cryptocurrencies," Annals of Operations Research, Springer, vol. 313(1), pages 47-75, June.
    10. Chang, Chia-Lin & McAleer, Michael & Wang, Yu-Ann, 2020. "Herding behaviour in energy stock markets during the Global Financial Crisis, SARS, and ongoing COVID-19," Renewable and Sustainable Energy Reviews, Elsevier, vol. 134(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gatfaoui, Hayette, 2016. "Linking the gas and oil markets with the stock market: Investigating the U.S. relationship," Energy Economics, Elsevier, vol. 53(C), pages 5-16.
    2. Jadidzadeh, Ali & Serletis, Apostolos, 2017. "How does the U.S. natural gas market react to demand and supply shocks in the crude oil market?," Energy Economics, Elsevier, vol. 63(C), pages 66-74.
    3. Nguyen, Bao H. & Okimoto, Tatsuyoshi, 2019. "Asymmetric reactions of the US natural gas market and economic activity," Energy Economics, Elsevier, vol. 80(C), pages 86-99.
    4. Abdullahi Alim & Peter R. Hartley & Yihui Lan, 2018. "Asian Spot Prices for LNG and other Energy Commodities," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    5. Ramberg, David J. & Henry Chen, Y.H. & Paltsev, Sergey & Parsons, John E., 2017. "The economic viability of gas-to-liquids technology and the crude oil–natural gas price relationship," Energy Economics, Elsevier, vol. 63(C), pages 13-21.
    6. repec:dau:papers:123456789/11692 is not listed on IDEAS
    7. Jorge Chebeir & Aryan Geraili & Jose Romagnoli, 2017. "Development of Shale Gas Supply Chain Network under Market Uncertainties," Energies, MDPI, vol. 10(2), pages 1-31, February.
    8. Li, Fengyun & Li, Xingmei & Zheng, Haofeng & Yang, Fei & Dang, Ruinan, 2021. "How alternative energy competition shocks natural gas development in China: A novel time series analysis approach," Resources Policy, Elsevier, vol. 74(C).
    9. Nick, Sebastian & Thoenes, Stefan, 2014. "What drives natural gas prices? — A structural VAR approach," Energy Economics, Elsevier, vol. 45(C), pages 517-527.
    10. Lahiani, Amine & Miloudi, Anthony & Benkraiem, Ramzi & Shahbaz, Muhammad, 2017. "Another look on the relationships between oil prices and energy prices," Energy Policy, Elsevier, vol. 102(C), pages 318-331.
    11. Kaufmann, Robert K. & Hines, Edward, 2018. "The effects of combined-cycle generation and hydraulic fracturing on the price for coal, oil, and natural gas: Implications for carbon taxes," Energy Policy, Elsevier, vol. 118(C), pages 603-611.
    12. Derek Bunn, Julien Chevallier, Yannick Le Pen, and Benoit Sevi, 2017. "Fundamental and Financial Influences on the Co-movement of Oil and Gas Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    13. repec:ipg:wpaper:2014-414 is not listed on IDEAS
    14. Hou, Chenghan & Nguyen, Bao H., 2018. "Understanding the US natural gas market: A Markov switching VAR approach," Energy Economics, Elsevier, vol. 75(C), pages 42-53.
    15. Zhang, Dayong & Shi, Min & Shi, Xunpeng, 2018. "Oil indexation, market fundamentals, and natural gas prices: An investigation of the Asian premium in natural gas trade," Energy Economics, Elsevier, vol. 69(C), pages 33-41.
    16. Gatfaoui, Hayette, 2015. "Pricing the (European) option to switch between two energy sources: An application to crude oil and natural gas," Energy Policy, Elsevier, vol. 87(C), pages 270-283.
    17. Zied Ftiti & Kais Tissaoui & Sahbi Boubaker, 2022. "On the relationship between oil and gas markets: a new forecasting framework based on a machine learning approach," Annals of Operations Research, Springer, vol. 313(2), pages 915-943, June.
    18. Gatfaoui, Hayette, 2019. "Diversifying portfolios of U.S. stocks with crude oil and natural gas: A regime-dependent optimization with several risk measures," Energy Economics, Elsevier, vol. 80(C), pages 132-152.
    19. Wang, Tiantian & Qu, Wan & Zhang, Dayong & Ji, Qiang & Wu, Fei, 2022. "Time-varying determinants of China's liquefied natural gas import price: A dynamic model averaging approach," Energy, Elsevier, vol. 259(C).
    20. Ren, Xiaohang & Lu, Zudi & Cheng, Cheng & Shi, Yukun & Shen, Jian, 2019. "On dynamic linkages of the state natural gas markets in the USA: Evidence from an empirical spatio-temporal network quantile analysis," Energy Economics, Elsevier, vol. 80(C), pages 234-252.
    21. Wiggins, Seth & Etienne, Xiaoli L., 2017. "Turbulent times: Uncovering the origins of US natural gas price fluctuations since deregulation," Energy Economics, Elsevier, vol. 64(C), pages 196-205.
    22. Ji, Qiang & Zhang, Hai-Ying & Geng, Jiang-Bo, 2018. "What drives natural gas prices in the United States? – A directed acyclic graph approach," Energy Economics, Elsevier, vol. 69(C), pages 79-88.

    More about this item

    Keywords

    Crude Oil Price; Natural Gas Price; Aggregate Demand Shock;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ2:2016-02-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.