The historic oil price fluctuation during the Covid-19 pandemic: What are the causes?

Thai-Ha Le, Anh Tu Le and Ha-Chi Le

Research in International Business and Finance, 2021, vol. 58, issue C

Abstract: On 20 April 2020, the West Texas Intermediate (WTI) crude oil price dropped to negative levels for the first time in history. This study examines the factors underlying the historic oil price fluctuation during the Covid-19 pandemic. The autoregressive distributed lag (ARDL) bounds testing approach incorporating a structural break is applied to the daily series from 17 January to 14 September 2020 to analyze long-run relationships and short-run dynamics. The results reveal that increases in Covid-19 pandemic cases, US economic policy uncertainty, and expected stock market volatility contributed to the fall in the WTI crude oil price, whereas the fall in the global stock markets appears to significantly reduce the fall. Furthermore, the Russia–Saudi Arabia oil price war and speculation on oil futures are shown to play a critical part in the collapse of the oil markets. The findings are consistent with our expectations. Although it is reasonable to assume that the solution to this oil crisis is a pick-up in global oil demand, which will occur only when the novel coronavirus is defeated, this study proposes policy recommendations to cope with the current oil price crash.

Keywords: Oil price war; Covid-19 pandemic; VIX; Economic policy uncertainty; Global stock markets (search for similar items in EconPapers)
JEL-codes: C22 Q43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921001100

DOI: 10.1016/j.ribaf.2021.101489

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