The Dynamic Linkages between Crude Oil and Natural Gas Markets

32 Pages Posted: 2 Sep 2015

See all articles by Jonathan A. Batten

Jonathan A. Batten

RMIT University

Cetin Ciner

University of North Carolina at Wilmington

Brian M. Lucey

Trinity Business School, Trinity College Dublin; Ho Chi Minh City University of Economics and Finance; Jiangxi University of Finance and Economics

Date Written: August 31, 2015

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. This appears due to a conjunction of both demand and supply-side shocks arising from both natural and economic events, including Hurricane Katrina and the Global Financial Crisis, as well as the increased use of new technologies such as hydraulic fracking for the extraction of gas and oil. In effect the long term relation present in the early part of the sample has decoupled such that price determination of these two energy sources are now independent.

Keywords: oil, gas, asymmetric, causality, out-of-sample

JEL Classification: N5, G12

Suggested Citation

Batten, Jonathan A. and Ciner, Cetin and Lucey, Brian M., The Dynamic Linkages between Crude Oil and Natural Gas Markets (August 31, 2015). Available at SSRN: https://ssrn.com/abstract=2653718 or http://dx.doi.org/10.2139/ssrn.2653718

Jonathan A. Batten

RMIT University ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria
Australia

HOME PAGE: http://https://www.rmit.edu.au/contact/staff-contacts/academic-staff/b/batten-professor-jonathan

Cetin Ciner

University of North Carolina at Wilmington ( email )

Wilmington, NC 28403
United States

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

Ho Chi Minh City University of Economics and Finance ( email )

59C Nguyen D├Čnh Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

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