Price bubbles in oil & gas markets and their transfer

Zuyi Wang and Man-Keun Kim

Resources Policy, 2022, vol. 79, issue C

Abstract: Research objective of the study is to examine if price bubbles can be transferred between the oil-gas markets. We also estimate the probability of bubble transfer and see if bubble transfer probability depends on the gas pricing mechanisms, for example, oil-indexation. We examine the bubble transfer as followings; i) identifying price bubbles in WTI, Brent, Henry Hub, EU gas, and Japan gas markets using Generalized Sup Augmented Dickey-Fuller (GSADF) test, ii) applying Granger causality test and Autoregressive Distributed Lag (ARDL) model to GSADF test statistics, not the energy prices, which is an innovative approach to understand price bubbles transfer, and iii) estimating probabilities of bubble transfers from the oil market to gas market using Logit models. Empirical results show that GSADF statistics for oil prices Granger cause GSADF statistics for gas prices implying that price bubbles in the oil market could transfer to the gas market. ARDL models with GSADF statistics indicate that the impact of oil GSADF on gas GSADF depends on gas pricing mechanisms. Japan gas market has the large impact and chance of transferring price bubbles from Brent while Henry Hub has the small impact and low chance of bubble transfer from WTI. This study contributes to existing literature by confirming that price bubbles in the oil market transferred to the gas market and the probabilities of transfer depend on gas pricing mechanism.

Keywords: Autoregressive distributed lag model; Crude oil prices; Generalized sup augmented dickey-fuller test; Granger causality; Natural gas prices; Price bubbles (search for similar items in EconPapers)
JEL-codes: C32 Q31 Q41 Q48 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:79:y:2022:i:c:s0301420722005025

DOI: 10.1016/j.resourpol.2022.103059

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