Time-varying causality and correlations between spot and futures prices of natural gas, crude oil, heating oil, and gasoline

Walid Mensi, Mariem Brahim, Shawkat Hammoudeh, Aviral Tiwari and Sang Hoon Kang

Resources Policy, 2024, vol. 93, issue C

Abstract: This paper examines the time-varying Granger causality between spot and futures prices of petroleum (oil, gasoline, and heating oil) and natural gas markets. The methodology involves computing time-point grey correlations, performing time-varying causality tests, and estimating dynamic equicorrelations between pairs of these markets. The estimated results show that the futures and spot prices of those petroleum and natural gas are highly correlated. The relationship dynamics of two variables in the pairs intensified during extreme economic and political events as well as during COVID-19 spread and the Russia-Ukraine conflict. Among all the energy commodities, heating oil and crude oil (natural gas) present the highest (lowest) integrated grey correlations. In addition, the time-varying Granger causality test results show evidence evolving bidirectional information spillovers between the futures and spot prices of natural gas and gasoline. Moreover, the dynamic equicorrelation estimates show an evolving relationship between the futures and spot prices and provide support for the findings of the causality tests.

Keywords: Petroleum; Natural gas; Grey correlations; Dynamic equicorrelation (search for similar items in EconPapers)
JEL-codes: F3 G13 Q31 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:93:y:2024:i:c:s0301420724004446

DOI: 10.1016/j.resourpol.2024.105077

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