Dynamic frequency relationships and volatility spillovers in natural gas, crude oil, gas oil, gasoline, and heating oil markets: Implications for portfolio management

This paper examines the dynamic frequency co-movements and volatility spillovers between crude oil, gas oil, gasoline, heating oil, and natural gas futures markets during the global financial crisis and European crisis (GFC & ESDC), recent oil price crash, and COVID-19 pandemic crisis. We apply the spillover index by Diebold and Yilmaz (2012) and wavelet methods. The results show significant risk spillovers among the leading energy futures markets. Moreover, the spillovers are intensified during the financial crisis, oil crisis and COVID-19 outbreak. WTI crude oil is the highest net contributor of volatility spillovers to the other markets, whereas the other energy markets are net receivers of spillovers for the different sub periods, with the exception of natural gas before the GFC and during COVID-19 as well as Brent oil during COVID-19. Furthermore, the results show significant integration and multiscale co-movements among energy futures. Natural gas asset offers better diversification benefits to crude oil, heating oil, gasoline and gas oil under short term. Finally, the diversification gains diminish as scales rise. The optimal weight, hedge ratios and hedging effectiveness are time varying and crises-sensitive. These findings have significant implications for energy traders and policymakers to inform their decision-making.