Normal and extreme impact and connectedness between fossil energy futures markets and uncertainties: Does El Niño-Southern Oscillation matter?

Extant research may still lack a nuanced comprehension of the impact and connectedness among fossil energy markets and multiple uncertainties, particularly climate uncertainty represented by the El Niño Southern Oscillation (ENSO), through normal to extreme conditions, despite the recognition that uncertainties play a pivotal role in shaping the price dynamics of fossil energy markets. In view of this, employing the quantile-on-quantile regression and quantile connectedness approaches, our study, to the best of our knowledge, pioneers a comprehensive evaluation of the impact and connectedness between three important fossil energy markets and four pivotal uncertainties under different market conditions. Our empirical findings underscore several key points. Firstly, the conventional mean-based methods risk underestimating the linkages between fossil energy markets and uncertainties, as the impact and connectedness between these variables are distinctly more pronounced under extreme market conditions. Secondly, we observe the ENSO predominantly operates as a net performer, while the crude oil market acts as a net participant in the takeover of information spillovers. Thirdly, our analysis reveals that strong La Niña events propagate more potent information spillovers when compared to strong El Niño events. Fourthly, the dynamic analysis lends further credence to a tighter time-varying connectedness between fossil energy markets and uncertainties under extreme downside and upside than under normal market conditions. Finally, the dynamic connectedness results propose that the ENSO consistently serves as a stable net contributor of information to all other variables under extreme market conditions. In contrast, geopolitical uncertainty and infectious disease uncertainty operate as both recipients and contributors over time and across quantiles with the dominance of a net contributor pattern in the extreme upside and downside, respectively. These findings provide fresh and valuable implications for enhancing resilience against shocks from uncertainties impacting fossil energy commodities.