Climate Shocks in Global Oil Markets: Time-Varying ENSO Transmission to WTI Spot and Futures 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: This paper studies whether global climate shocks are priced in global oil markets in a stable and homogeneous way. Using monthly data for 1983:03-2024:10, we estimate the response of real WTI spot and futures prices to phase-specific El Nino-Southern Oscillation (ENSO) anomalies. A Time-Varying Parameter Local Projection (TVP-LP) framework recovers horizon-specific coefficient paths, allowing transmission of the same measured anomaly to vary across historical market environments. ENSO transmission is asymmetric, time-varying, and spatially heterogeneous. El Nino anomalies lower real oil prices at six- to twelve-month horizons, whereas La Nina anomalies raise them. For futures prices, responses scaled to the sample means of the phase-specific absolute impulse variables-0.33 C for El Nino and 0.39 C for La Nina-imply declines of about 4.1-6.8 percent and increases of about 8.3-11.5 percent. Recent ENSO episodes generate more pronounced responses, consistent with stronger roles for climate information, futures-market expectations, inventories, and delayed supply-demand adjustment. Central-Pacific events, especially La Nina, are more inflationary than Easter-Pacific events, which are typically muted or deflationary. The findings imply that climate shocks are macro-financial risk factors in global oil markets, with implications for inflation, energy prices, and international risk transmission.

Keywords: oil prices; oil futures; ENSO; climate risk; international transmission; time-varying local projections (search for similar items in EconPapers)
JEL-codes: E31 F31 F36 G13 Q43 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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