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Stationarity changes in long-run energy commodity prices

Aleksandar Zaklan, Jan Abrell and Anne Neumann

Energy Economics, 2016, vol. 59, issue C, 96-103

Abstract: Situated at the intersection of the literatures on speculative storage and non-renewable commodity scarcity, this paper considers whether changes in persistence have occurred in long-run U.S. prices of the energy commodities crude oil, natural gas and bituminous coal. We allow for a structural break when testing for a break in persistence to avoid a change in the stochastic properties of prices being confounded by an unaccounted-for deterministic shift in the price series. We find that coal prices are trend stationary throughout their evolution and that oil prices change from stationarity to non-stationarity in the decade between the late 1960s to late 1970s. The result on gas prices is ambiguous. Our results demonstrate the importance of accounting for a possible structural shift when testing for breaks in persistence, while being robust to the exact date of the structural break. Based on our analysis we caution against viewing long-run energy commodity prices as being non-stationary and conclude in favor of modeling commodity market fundamentals as stationary, meaning that speculative storage will tend to have a dampening effect on prices. We also cannot reject that long-run prices of coal and, with some hesitation, gas follow a Hotelling-type rule. In contrast, we reject the Hotelling rule for oil prices since the late 1960s/early 1970s.

Keywords: Non-renewable commodity prices; Competitive storage; Resource scarcity; Stationarity; Structural breaks (search for similar items in EconPapers)
JEL-codes: C12 C22 Q31 Q35 Q41 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.eneco.2016.07.022

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