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Do Tense Geopolitical Factors Drive Crude Oil Prices?

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  • Fen Li

    (School of Marxism, Hunan Institute of Technology, Hengyang 421001, China)

  • Zhehao Huang

    (Guangzhou Institute of International Finance, Guangzhou University, Guangzhou 510405, China)

  • Junhao Zhong

    (School of Economics and Commerce, South China University of Technology, Guangzhou 510006, China)

  • Khaldoon Albitar

    (Accounting and Financial Management, Portsmouth Business School, Portsmouth PO1 3DE, UK)

Abstract

Geopolitical factors are considered a crucial factor that makes a difference in crude oil prices. Over the last three decades, many political events occurred frequently, causing short-term fluctuations in crude oil prices. This paper aims to examine the dynamic correlation and causal link between geopolitical factors and crude oil prices based on data from June 1987 to February 2020. By using a time-varying copula approach, it is shown that the correlation between geopolitical factors and crude oil prices is strong during periods of political tensions. The GPA (geopolitical acts) index, as the real factor, drives the rise in prices of crude oil. Moreover, the dynamic correlation between geopolitical factors and crude oil prices shows strong volatility over time during periods of political tensions. We also found unidirectional causality running from geopolitical factors to crude oil prices by using the Granger causality test.

Suggested Citation

  • Fen Li & Zhehao Huang & Junhao Zhong & Khaldoon Albitar, 2020. "Do Tense Geopolitical Factors Drive Crude Oil Prices?," Energies, MDPI, vol. 13(16), pages 1-20, August.
    • Handle: RePEc:gam:jeners:v:13:y:2020:i:16:p:4277-:d:400712
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