Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/gam/jeners/v15y2022i8p2884-d794079.html
   My bibliography  Save this article

Oil and Gas Markets and COVID-19: A Critical Rumination on Drivers, Triggers, and Volatility

Author

Listed:
  • Kaushik Ranjan Bandyopadhyay

    (Indian Institute of Management Lucknow, Lucknow 226013, India)

Abstract
The paper endeavours to explore and analyse some critical issues in the oil and gas market that cropped up around the spread of COVID-19 and tries to identify the key drivers and triggers pertaining therewith. The spread of the first wave that began in March 2020 is crucial because of the global economic downturn that ensued due to lockdown and imposed restrictions coupled with a protracted oil price war that began between Saudi Arabia and Russia. The paper tries to address some key research questions to understand the triggers and drivers around the pandemic. These are: (1) whether the behaviour of OPEC or its key players around the pandemic could be considered uniquely different; (2) what could the triggers be for the increased volatilities that cropped up in both physical and financial markets during the pandemic; (3) what was really different about the oil market crisis around the pandemic that transformed it to an unprecedented storage crisis; (4) what really went wrong with the much-hyped U.S. shale boom during the pandemic that led to the bankruptcy of several oil and gas companies, followed by huge job losses. The paper relies on a structured review of relevant secondary literature to address these exploratory questions and builds upon a retrospective rumination on the world oil market from 1960 to 2020. This is complemented by an analysis of supporting data and evidence obtained from various sources. Considering the intertwining of oil and financial markets around the pandemic, the lessons and findings from the paper would not only be highly relevant for policymakers and stakeholders in the oil and gas sector but would be equally relevant for those in the financial markets.

Suggested Citation

  • Kaushik Ranjan Bandyopadhyay, 2022. "Oil and Gas Markets and COVID-19: A Critical Rumination on Drivers, Triggers, and Volatility," Energies, MDPI, vol. 15(8), pages 1-21, April.
    • Handle: RePEc:gam:jeners:v:15:y:2022:i:8:p:2884-:d:794079
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1996-1073/15/8/2884/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1996-1073/15/8/2884/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kilian, Lutz & Lee, Thomas K., 2014. "Quantifying the speculative component in the real price of oil: The role of global oil inventories," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 71-87.
    2. Genc, Talat S., 2017. "OPEC and demand response to crude oil prices," Energy Economics, Elsevier, vol. 66(C), pages 238-246.
    3. Dermot Gately, 2004. "OPEC's Incentives for Faster Output Growth," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 75-96.
    4. Ron Alquist & Lutz Kilian, 2010. "What do we learn from the price of crude oil futures?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 539-573.
    5. Griffin, James M & Neilson, William S, 1994. "The 1985-86 Oil Price Collapse and Afterwards: What Does Game Theory Add?," Economic Inquiry, Western Economic Association International, vol. 32(4), pages 543-561, October.
    6. Cheima Gharib & Salma Mefteh-Wali & Vanessa Serret & Sami Ben Jabeur, 2021. "Impact of COVID-19 pandemic on crude oil prices: Evidence from Econophysics approach," Post-Print hal-03375164, HAL.
    7. Mensi, Walid & Sensoy, Ahmet & Vo, Xuan Vinh & Kang, Sang Hoon, 2020. "Impact of COVID-19 outbreak on asymmetric multifractality of gold and oil prices," Resources Policy, Elsevier, vol. 69(C).
    8. Li, Yan & Chevallier, Julien & Wei, Yigang & Li, Jing, 2020. "Identifying price bubbles in the US, European and Asian natural gas market: Evidence from a GSADF test approach," Energy Economics, Elsevier, vol. 87(C).
    9. James L. Smith, 2005. "Inscrutable OPEC? Behavioral Tests of the Cartel Hypothesis," The Energy Journal, , vol. 26(1), pages 51-82, January.
    10. Carol Dahl & Mine K. Yücel, 1991. "What motivates oil producers?: testing alternative hypotheses," Working Papers 9106, Federal Reserve Bank of Dallas.
    11. Dees, Stephane & Karadeloglou, Pavlos & Kaufmann, Robert K. & Sanchez, Marcelo, 2007. "Modelling the world oil market: Assessment of a quarterly econometric model," Energy Policy, Elsevier, vol. 35(1), pages 178-191, January.
    12. Brémond, Vincent & Hache, Emmanuel & Mignon, Valérie, 2012. "Does OPEC still exist as a cartel? An empirical investigation," Energy Economics, Elsevier, vol. 34(1), pages 125-131.
    13. Geroski, Paul A & Ulph, Alistair M & Ulph, David T, 1987. "A Model of the Crude Oil Market in Which Market Conduct Varies," Economic Journal, Royal Economic Society, vol. 97(388a), pages 77-86, Supplemen.
    14. Robert. K. Kaufmann & Caitlin Connelly, 2020. "Non-market forces significantly affect oil prices," Nature Energy, Nature, vol. 5(2), pages 129-130, February.
    15. Delatte, Anne-Laure & Lopez, Claude, 2013. "Commodity and equity markets: Some stylized facts from a copula approach," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5346-5356.
    16. Robert K. Kaufmann & Stephane Dees & Pavlos Karadeloglou & Marcelo Sanchez, 2004. "Does OPEC Matter? An Econometric Analysis of Oil Prices," The Energy Journal, , vol. 25(4), pages 67-90, October.
    17. Hnyilicza, Esteban & Pindyck, Robert S., 1976. "Pricing policies for a two-part exhaustible resource cartel : The case of OPEC," European Economic Review, Elsevier, vol. 8(2), pages 139-154, August.
    18. Hyndman, Kyle, 2008. "Disagreement in bargaining: An empirical analysis of OPEC," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 811-828, May.
    19. Atri, Hanen & Kouki, Saoussen & Gallali, Mohamed imen, 2021. "The impact of COVID-19 news, panic and media coverage on the oil and gold prices: An ARDL approach," Resources Policy, Elsevier, vol. 72(C).
    20. David Bourghelle & Fredj Jawadi & Philippe Rozin, 2021. "Oil price volatility in the context of Covid-19," International Economics, CEPII research center, issue 167, pages 39-49.
    21. James D. Hamilton, 2011. "Historical Oil Shocks," NBER Working Papers 16790, National Bureau of Economic Research, Inc.
    22. Ahundjanov, Behzod B. & Akhundjanov, Sherzod B. & Okhunjanov, Botir B., 2021. "Risk perception and oil and gasoline markets under COVID-19," Journal of Economics and Business, Elsevier, vol. 115(C).
    23. Kaufmann, Robert K. & Bradford, Andrew & Belanger, Laura H. & Mclaughlin, John P. & Miki, Yosuke, 2008. "Determinants of OPEC production: Implications for OPEC behavior," Energy Economics, Elsevier, vol. 30(2), pages 333-351, March.
    24. Ezzati, Ali, 1976. "Future OPEC price and production strategies as affected by its capacity to absorb oil revenues," European Economic Review, Elsevier, vol. 8(2), pages 107-138, August.
    25. Richard J. Gilbert, 1978. "Dominant Firm Pricing Policy in a Market for an Exhaustible Resource," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 385-395, Autumn.
    26. Silvennoinen, Annastiina & Thorp, Susan, 2013. "Financialization, crisis and commodity correlation dynamics," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 42-65.
    27. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
    28. Kisswani, Khalid M., 2016. "Does OPEC act as a cartel? Empirical investigation of coordination behavior," Energy Policy, Elsevier, vol. 97(C), pages 171-180.
    29. Roumasset, J. & Isaak, D. & Fesharaki, F., 1983. "Oil prices without OPEC : A walk on the supply-side," Energy Economics, Elsevier, vol. 5(3), pages 164-170, July.
    30. Christopher R. Knittel & Robert S. Pindyck, 2016. "The Simple Economics of Commodity Price Speculation," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(2), pages 85-110, April.
    31. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    32. Sari, Ramazan & Soytas, Ugur & Hacihasanoglu, Erk, 2011. "Do global risk perceptions influence world oil prices?," Energy Economics, Elsevier, vol. 33(3), pages 515-524, May.
    33. Celina Löwen & Bilal Kchouri & Thorsten Lehnert, 2021. "Is this time really different? Flight-to-safety and the COVID-19 crisis," PLOS ONE, Public Library of Science, vol. 16(5), pages 1-17, May.
    34. Carol Dahl & Mine Yücel, 1991. "Testing Alternative Hypotheses of Oil Producer Behavior," The Energy Journal, , vol. 12(4), pages 117-138, October.
    35. S. Gurcan Gulen, 1996. "Is OPEC a Cartel? Evidence from Cointegration and Causality Tests," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 43-57.
    36. Le, Thai-Ha & Le, Anh Tu & Le, Ha-Chi, 2021. "The historic oil price fluctuation during the Covid-19 pandemic: What are the causes?," Research in International Business and Finance, Elsevier, vol. 58(C).
    37. Kaufmann, Robert K., 1995. "A model of the world oil market for project LINK Integrating economics, geology and politics," Economic Modelling, Elsevier, vol. 12(2), pages 165-178, April.
    38. Pindyck, Robert S, 1978. "Gains to Producers from the Cartelization of Exhaustible Resources," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 238-251, May.
    39. Robert Ritz, 2020. "Climate targets, executive compensation, and corporate strategy," Working Papers EPRG2029, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    40. Moran, Theodore H., 1981. "Modeling OPEC behavior: economic and political alternatives," International Organization, Cambridge University Press, vol. 35(2), pages 241-272, April.
    41. De Santis, Roberto A., 2003. "Crude oil price fluctuations and Saudi Arabia's behaviour," Energy Economics, Elsevier, vol. 25(2), pages 155-173, March.
    42. Claudiu Albulescu, 2020. "Coronavirus and oil price crash," Papers 2003.06184, arXiv.org, revised Mar 2020.
    43. A.F Alhajji & David Huettner, 2000. "OPEC and World Crude Oil Markets from 1973 to 1994: Cartel, Oligopoly, or Competitive?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 31-60.
    44. Griffin, James M, 1985. "OPEC Behavior: A Test of Alternative Hypotheses," American Economic Review, American Economic Association, vol. 75(5), pages 954-963, December.
    45. Baldwin, Nick & Prosser, Richard, 1988. "World oil market simulation," Energy Economics, Elsevier, vol. 10(3), pages 185-198, July.
    46. Mr. Rodney Ramcharan, 2002. "Money, Meat, and Inflation: Using Price Data to Understand An Export Shock in Sudan," IMF Working Papers 2002/084, International Monetary Fund.
    47. Bassam Fattouh & Lavan Mahadeva, 2013. "OPEC: What Difference Has It Made?," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 427-443, June.
    48. Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-1093, October.
    49. Mr. Noureddine Krichene, 2005. "A Simultaneous Equations Model for World Crude Oil and Natural Gas Markets," IMF Working Papers 2005/032, International Monetary Fund.
    50. Cepoi, Cosmin-Octavian, 2020. "Asymmetric dependence between stock market returns and news during COVID-19 financial turmoil," Finance Research Letters, Elsevier, vol. 36(C).
    51. Basher, Syed Abul & Sadorsky, Perry, 2016. "Hedging emerging market stock prices with oil, gold, VIX, and bonds: A comparison between DCC, ADCC and GO-GARCH," Energy Economics, Elsevier, vol. 54(C), pages 235-247.
    52. Sharif, Arshian & Aloui, Chaker & Yarovaya, Larisa, 2020. "COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach," International Review of Financial Analysis, Elsevier, vol. 70(C).
    53. Berger, Theo & Uddin, Gazi Salah, 2016. "On the dynamic dependence between equity markets, commodity futures and economic uncertainty indexes," Energy Economics, Elsevier, vol. 56(C), pages 374-383.
    54. Dermot Gately, 2007. "What Oil Export Levels Should We Expect From OPEC?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 151-174.
    55. Bašta, Milan & Molnár, Peter, 2018. "Oil market volatility and stock market volatility," Finance Research Letters, Elsevier, vol. 26(C), pages 204-214.
    56. Tang, Linghui & Hammoudeh, Shawkat, 2002. "An empirical exploration of the world oil price under the target zone model," Energy Economics, Elsevier, vol. 24(6), pages 577-596, November.
    57. Klein, Tony, 2018. "Trends and contagion in WTI and Brent crude oil spot and futures markets - The role of OPEC in the last decade," Energy Economics, Elsevier, vol. 75(C), pages 636-646.
    58. Gharib, Cheima & Mefteh-Wali, Salma & Serret, Vanessa & Ben Jabeur, Sami, 2021. "Impact of COVID-19 pandemic on crude oil prices: Evidence from Econophysics approach," Resources Policy, Elsevier, vol. 74(C).
    59. Axel Pierru, James L. Smith, and Tamim Zamrik, 2018. "OPECs Impact on Oil Price Volatility: The Role of Spare Capacity," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    60. Colgan, Jeff D., 2014. "The Emperor Has No Clothes: The Limits of OPEC in the Global Oil Market," International Organization, Cambridge University Press, vol. 68(3), pages 599-632, July.
    61. Kaushik Ranjan Bandyopadhyay, 2021. "COVID-19 and the Big Oil Price Crash: Exploring the Anatomy," India Studies in Business and Economics, in: Purnamita Dasgupta & Anindita Roy Saha & Robin Singhal (ed.), Sustainable Development Insights from India, pages 239-257, Springer.
    62. Salisu, Afees A. & Ebuh, Godday U. & Usman, Nuruddeen, 2020. "Revisiting oil-stock nexus during COVID-19 pandemic: Some preliminary results," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 280-294.
    63. C. T. Vidya & K. P. Prabheesh, 2020. "Implications of COVID-19 Pandemic on the Global Trade Networks," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(10), pages 2408-2421, August.
    64. Hui Guo & Kevin L. Kliesen, 2005. "Oil price volatility and U.S. macroeconomic activity," Review, Federal Reserve Bank of St. Louis, vol. 87(Nov), pages 669-684.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Golombek, Rolf & Irarrazabal, Alfonso A. & Ma, Lin, 2018. "OPEC's market power: An empirical dominant firm model for the oil market," Energy Economics, Elsevier, vol. 70(C), pages 98-115.
    2. Bandyopadhyay, Kaushik Ranjan, 2009. "Does OPEC act as a Residual Producer?," MPRA Paper 25841, University Library of Munich, Germany, revised 2010.
    3. Güntner, Jochen H.F., 2014. "How do oil producers respond to oil demand shocks?," Energy Economics, Elsevier, vol. 44(C), pages 1-13.
    4. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    5. Loutia, Amine & Mellios, Constantin & Andriosopoulos, Kostas, 2016. "Do OPEC announcements influence oil prices?," Energy Policy, Elsevier, vol. 90(C), pages 262-272.
    6. Durand-Lasserve, Olivier & Pierru, Axel, 2021. "Modeling world oil market questions: An economic perspective," Energy Policy, Elsevier, vol. 159(C).
    7. Reynolds, Douglas B. & Pippenger, Michael K., 2010. "OPEC and Venezuelan oil production: Evidence against a cartel hypothesis," Energy Policy, Elsevier, vol. 38(10), pages 6045-6055, October.
    8. Kisswani, Khalid M. & Lahiani, Amine & Mefteh-Wali, Salma, 2022. "An analysis of OPEC oil production reaction to non-OPEC oil supply," Resources Policy, Elsevier, vol. 77(C).
    9. Berk, Istemi & Çam, Eren, 2020. "The shift in global crude oil market structure: A model-based analysis of the period 2013–2017," Energy Policy, Elsevier, vol. 142(C).
    10. Parnes, Dror, 2019. "Heterogeneous noncompliance with OPEC's oil production cuts," Energy Economics, Elsevier, vol. 78(C), pages 289-300.
    11. Cologni, Alessandro & Manera, Matteo, 2014. "On the economic determinants of oil production," Energy Economics, Elsevier, vol. 44(C), pages 68-79.
    12. Ben Salem, Leila & Nouira, Ridha & Jeguirim, Khaled & Rault, Christophe, 2022. "The determinants of crude oil prices: Evidence from ARDL and nonlinear ARDL approaches," Resources Policy, Elsevier, vol. 79(C).
    13. Al Rousan, Sahel & Sbia, Rashid & Tas, Bedri Kamil Onur, 2018. "A dynamic network analysis of the world oil market: Analysis of OPEC and non-OPEC members," Energy Economics, Elsevier, vol. 75(C), pages 28-41.
    14. Le, Thai-Ha & Le, Anh Tu & Le, Ha-Chi, 2021. "The historic oil price fluctuation during the Covid-19 pandemic: What are the causes?," Research in International Business and Finance, Elsevier, vol. 58(C).
    15. Wirl, Franz, 2015. "Output adjusting cartels facing dynamic, convex demand under uncertainty: The case of OPEC," Economic Modelling, Elsevier, vol. 44(C), pages 307-316.
    16. Berk, Istemi & Çam , Eren, 2019. "The Shift in Global Crude Oil Market Structure: A model-based analysis of the period 2013–2017," EWI Working Papers 2019-5, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    17. Colgan, Jeff D., 2014. "The Emperor Has No Clothes: The Limits of OPEC in the Global Oil Market," International Organization, Cambridge University Press, vol. 68(3), pages 599-632, July.
    18. Brown, Stephen P.A. & Huntington, Hillard G., 2017. "OPEC and world oil security," Energy Policy, Elsevier, vol. 108(C), pages 512-523.
    19. Bharati, Rakesh & Crain, Susan J. & Kaminski, Vincent, 2012. "Clustering in crude oil prices and the target pricing zone hypothesis," Energy Economics, Elsevier, vol. 34(4), pages 1115-1123.
    20. Dagoumas, Athanasios & Perifanis, Theodosios & Polemis, Michael, 2017. "An econometric model to assess the Saudi Arabia crude oil strategy," MPRA Paper 86283, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jeners:v:15:y:2022:i:8:p:2884-:d:794079. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.