The impact of geopolitical risk on the behavior of oil prices and freight rates

Manuel Monge, María Fátima Romero Rojo and Luis Gil-Alana

Energy, 2023, vol. 269, issue C

Abstract: The impact of geopolitical risk on energy markets has drawn attention to the need for better statistical modeling, especially of the crude oil markets and the shipping industry. In this work, the West Texas Intermediate crude oil price and the Baltic Dry Index behavior under the assumption of geopolitical risks are examined by using monthly data from January 1985 until May 2021. Using fractional integration methods, the results indicate that geopolitical risk and the Baltic Dry Index series will return to their original trends in the event of an exogenous shock, in contrast to the West Texas Intermediate behavior. These results are supported by analyzing the long-term relationship of the time series using the Fractional Cointegration Vector AutoRegressive approach. Finally, we use Bai and Perron (2003) and wavelet transform approaches to detect breaks in the prices paid for the maritime transport and for the crude oil prices caused by geopolitical risks.

Keywords: Oil prices; Baltic dry index; Geopolitical risk index; Fractional integration; FCVAR model; Wavelet analysis (search for similar items in EconPapers)
JEL-codes: C00 C22 E30 N4 R41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:269:y:2023:i:c:s0360544223001731

DOI: 10.1016/j.energy.2023.126779

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