Not All Climate Shocks Are Alike: How ENSO Impacts Oil Prices

Marco Gallegati, William Ginn, Jamel Saadaoui, Solomos Solomou and Kun Tian

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: El Nino-Southern Oscillation (ENSO) anomalies have time-varying and asymmetric effects on U.S. WTI spot and futures prices over 1983-2024. A Time-Varying Parameter Local Projections (TVP-LP) framework recovers horizon-specific coefficient paths, allowing the transmission of a phase-specific ENSO anomaly to differ across historical oil-market environments. The evidence reveals that El Nino anomalies lower real oil prices at six- to twelve-month horizons, whereas La Nina anomalies raise them over the same horizon. Since the ENSO variables are phase-specific absolute Nino 3.4 SST anomalies measured in degrees Celsius, the estimated dynamic multipliers are interpreted per one-degree Celsius increase in the corresponding anomaly. For futures prices, responses to anomaly magnitudes of 0.6 C for El Nino and 0.5 C for La Nina yield declines of about 7.4-12.0 percent and increases of about 10.8-15.0 percent, respectively. Central-Pacific events, especially La Nina, generate stronger inflationary effects than Eastern-Pacific events, which are typically muted or deflationary. These findings indicate that ENSO-related oil-price risk depends jointly on phase, response horizon, calendar time, and spatial ENSO type.

Keywords: oil price; ENSO; local projections (search for similar items in EconPapers)
JEL-codes: C32 Q41 Q54 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2026-07
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2026-56

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