On the relation between the crude oil market and pandemic Covid-19

Abstract

PurposeThe crude oil market has experienced an unprecedented overreaction in the first half of the pandemic year 2020. This study aims to show the performance of the global crude oil market amid Covid-19 and spillover relations with other asset classes.Design/methodology/approachThe authors employ various pandemic outbreak indicators to show the overreaction of the crude oil market due to Covid-19 infection. The analysis also presents market connectedness and spillover relations between the crude oil market and other asset classes.FindingsOne of the essential findings the authors report is that the crude oil market remains more responsive to pandemic fake news. The shock of the global pandemic panic index and pandemic sentiment index appears to be more promising. It has also been noticed that the energy trader's sentiment (OVX and OIV) was measured at a too high level within the Covid-19 outbreak. Volatility spillover analysis shows that crude oil and other market are closely connected, and the total connectedness index directs on average 35% contribution from spillover. During the initial growth of the infection, other macroeconomic and political events remained to favor the market. The second phase amidst the pandemic outbreak harms the global crude oil market. The authors find that infectious diseases increase investor panic and anxiety.Practical implicationsThe crude oil investors' sentiment index OVX indicates fear and panic due to infectious diseases and lack of hedge funds to protect energy investments. The unparalleled overreaction of the investors gauged in OVX indicates market participants have paid an excessive put option (protection) premium over the contagious outbreak of the infectious disease.Originality/valueThe empirical model and result reported amid Covid-19 are novel in terms of employing a news-based index of the pandemic, which are based on the content analysis and text search using natural processing language with the aid of computer algorithms.

How Energy Sector Reacted to COVID‐19 Pandemic? Empirical Evidence from an Emerging Market Economy

“…irdly, different from prior papers that employed merely the worldwide pandemic cases [3,24,43,44], our econometric investigation covers both new cases of COVID-19 pandemic globally and in Europe. As well, contrary to prior papers that used the price of WTI crude oil [1-4, 7, 8, 24-26, 29, 33, 35, 39, 43, 45-56], Brent crude oil [4,7,8,15,24,26,36,37,43,44,46,47,49,51,52,[54][55][56], Dubai crude oil [4,8], NYMEX's oil [26,55,57], or carbon futures [14], the current study covers the daily returns of the Physical Electricity Index, Amsterdam Power Exchange Electricity Netherlands Average All Hours and, London Natural Gas Index United Kingdom Pence Per 100000 British ermal Units. Not least, different from prior papers focused on time-frequency connectedness [32,42,55,56,58], our quantitative framework covers several techniques such as GARCH estimation, autoregressive distributed lag (ARDL) models, as well as vector autoregressive (VAR) models.…”

“…Amamou and Bargaoui [49] found that the release of a new disease outbreak wave lessens dependence on the oil market, which losses its attributes as a safe-haven market in favor of other markets such as gold or cryptocurrencies. Shaikh [54] exhibited that global crude oil is negatively associated with the news connected to the COVID-19 pandemic.…”

Investigating the Nexus between Crude Oil Price and Stock Prices of Oil Exploration Companies

“…Long et al (2021) have used the VAR methodology to examine the relationship between money supply, inflation and output in Vietnam and China. VAR model is applied to analyse the relationship between the crude oil market and pandemic Covid-19 (Shaikh, 2021). To understand the spillover across equity markets between China and Southeast Asian countries, Hung (2019) applied VAR and BEKK models.…”

Symmetric and Asymmetric Causal Relationship between Oil Prices and G7 Stock Markets: A Bootstrap Rolling-Window Granger Causality Test

“…They argue that the COVID-19 outbreak has had a huge impact on crude oil prices and stock markets. Shaikh (2021) finds that global crude oil prices have tended to be more volatile during the COVID-19 pandemic. Sharif et al (2020) use the coherence wavelet approach and wavelet-based Granger causality tests to examine the effects of COVID-19 on oil price volatility, stock markets, geopolitical risk, and economic policy uncertainty in the US, finding that the COVID-19 pandemic has had the greatest impacts on US economic uncertainty and US geopolitical risk; they also find that the drop in oil prices had a substantial impact on US stock markets.…”