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

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

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.

Suggested Citation

  • Mensi, Walid & Brahim, Mariem & Hammoudeh, Shawkat & Tiwari, Aviral Kumar & Kang, Sang Hoon, 2024. "Time-varying causality and correlations between spot and futures prices of natural gas, crude oil, heating oil, and gasoline," Resources Policy, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:jrpoli:v:93:y:2024:i:c:s0301420724004446
    DOI: 10.1016/j.resourpol.2024.105077
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    More about this item

    Keywords

    Petroleum; Natural gas; Grey correlations; Dynamic equicorrelation;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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