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Exploring the Dynamic Behavior of Crude Oil Prices in Times of Crisis: Quantifying the Aftershock Sequence of the COVID-19 Pandemic

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  • Fotios M. Siokis

    (School of Economics and Regional Studies, University of Macedonia, 546 36 Thessaloniki, Greece)

Abstract

Crude oil prices crashed and dropped into negative territory at the onset of the COVID-19 pandemic. This extreme event triggered a series of great-magnitude aftershocks. We seek to investigate the cascading dynamics and the characteristics of the series immediately following the oil market crash. Utilizing a robust method named the Omori law, we quantify the correlations of these events. This research presents empirical regularity concerning the number of times that the absolute value of the percentage change in the oil index exceeds a given threshold value. During the COVID-19 crisis, the West Texas Intermediate (WTI) oil prices exhibit greater volatility compared to the Brent oil prices, with higher relaxation values at all threshold levels. This indicates that larger aftershocks decay more rapidly, and the period of turbulence for the WTI is shorter than that of Brent and the stock market indices. We also demonstrate that the power law’s exponent value increases with the threshold value’s magnitude. By proposing this alternative method of modeling extreme events, we add to the current body of literature, and the findings demonstrate its practical use for decision-making authorities—particularly financial traders who model high-volatility products like derivatives.

Suggested Citation

  • Fotios M. Siokis, 2024. "Exploring the Dynamic Behavior of Crude Oil Prices in Times of Crisis: Quantifying the Aftershock Sequence of the COVID-19 Pandemic," Mathematics, MDPI, vol. 12(17), pages 1-13, September.
    • Handle: RePEc:gam:jmathe:v:12:y:2024:i:17:p:2743-:d:1470556
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    References listed on IDEAS

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